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THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


HOW  TO  RJJN? 
A  CORPORATION 


(ENLARGED   EDITION) 


7f  REVISED    TREATISE    AND 
<"-  COMMENTARY  on  the  Forma- 

tion.  Incorporation,  Organization,  Reorgan- 
ization, and  Management  of  Industrial 
Corporations,  including  the  Analysis  of  a 
Corporation,  General  and  Special,  and  its 
Advantages,  Forms  of  Charters,  the  Initial 
Meeting,  Best  Place  to  Incorporate,  By- 
Laws  and  Minutes  for  the  Organization, 
Annual  and  all  Meetings,  General  and 
Special,  together  with  Briefs  and  Sugges- 
tions for  all  kinds  of  Corporate  Contracts, 
Watered  Stock,  Voting  Trusts,  Reorgani- 
zation, Consolidation,  Closing  Up  the  Cor- 
poration, Northern  Securities,  Charter,  Etc. 


BY  A.  J.  DAOOvS 

'11 

Member  of  the  Bar  of  the  State  of  Missouri,  Arizona  Territory,  and  the 

Supreme  Court  of  the  United  States. 

Author  of  "  Tramp  Corporations,"  a  Treatise  on  the  Rights  of  Corpora- 
tions under  the  Foreign   Corporation  and   Retaliatory  Corpo- 
rate  Acts  of  the  States  and   Territories 


Copyrighted  1904,  by  A.  J.  Daggs 


Copyrighted   1905,  by  A.  J.   Daggs 

T 


DEDICATION 

This  work  is  respectfully  dedicated  to  Robert  E.  Daggs, 
the  President  of  the  Arizona  Corporation  Charter  Guarantee 
Company,  at  whose  suggestion  and  by  whose  assistance  the 
book  has  been  prepared. 


729404 


AUTHOR'S  PREFACE 

This  treatise  on  corporate  law  and  forms  was  prepared 
for  the  use  of  those  managing  corporations.  It  is  designed 
to  show  the  beginner  how  to  proceed  correctly  in  the  man- 
agement of  a  corporation.  It  is  not  designed  to  show  you 
how  to  practice  law,  but  how  to  conduct  a  corporation  ac- 
cording to  law. 

Should  it  be  criticized  by  the  skilful  because  its  suggestions 
or  forms  are  plain  or  simple,  it  is  sufficient  to  say  that  is 
just  what  the  beginner  needs  the  most.  It  is  the  elements 
that  make  the  tremendous  whole.  It  is  the  little  things  that 
form  the  component  parts. 

The  most  difficult  problem  becomes  easy  after  it  is  once 
solved.  So,  too,  must  the  most  astute  forensic  scholar  have 
to  learn  the  little  things  in  order  to  compile  his  philosophy, 
wise  or  ill,  and  precisely  having  reached  his  goal,  did  he  not 
first  begin? 

Knowledge  is  power  when  it's  true.  Knowledge,  it's  true, 
never  is  new,  but  the  relic  of  dust  heap  forgotten.  There  is 
nothing  new  but  the  old  brought  to  view  by  the  power  of  in- 
quisitive knowledge.  The  new  is  not  true ;  the  true  is  not  new. 

With  these  suggestions,  the  author  is  prepared  to  apolo- 
gize to  the  reading  world,  if  it  is  found  that  he  has  drawn  noth- 
ing from  the  dust  heaps  of  the  past  and  written  a  new  book. 

In  gathering  the  material  for  this  volume,  it  has  been  the 
effort  to  point  out  what  the  law  is  now,  and  is  used  through 
forms  that  have  stood  the  test  of  juridical  scrutiny,  and  not 
only  to  suggest  what  to  do,  but  just  how  to  do  it.  Some- 
thing explanatory  has  been  said  about  each  subject  and  each 
form  that  may  help  the  understanding. 

If  the  work  is  found  instructive  to  those  it  is  designed  to 
assist,  it  is  well;  the  author  is  satisfied. 

A.  J.  DAGGS. 


TABLE,  OF  CONTENTS 


Part  I 
CHAPTER    I. 

INTRODUCTION. 

SECTIONS 

Romans    Originated    Plan    of    Incorpo- 
ration      i 

United    States    Pyramid    of    Corpora- 
tions       2 

United   States   School  of  Corporations  3 

Incorporation  by  Act  of  Legislature..  4 

Incorporation   Act   First   Passed 5 

Articles  of   Incorpsration   a  Contract.  6 
Granting      Charters     by      Legislatures 

Abandoned    7 

Growth   of    Incorporation 8 

Lawyer    Business    Pilot 9 

Prejudice   Against   Corporations   None  10 

Progression  of  Law  and  Courts 1 1 

Profit    12 

Incorporation    Medium   of   Profit 13 

CHAPTER  II. 

ANALYSIS    OF    CORPORATION    GENERALLY. 

Corporation   defined    14 

Betterment  of  business 15 

Existence     16 

Originates 17 

Corporate    Fiction     j .  18 

Legal    Existence    Distinct 19 

Perpetual    Succession 20 

Potential    Perpetuity    21. 

Plenary  Power  of  State   22 

Eminent  Domain  by  State   23 

Subscription  Not  Necessary  to  Form..  24 

Subscription   Breach  Contiact    25 

Transfer  of  Stock  No  Longer  Liable.  26 
Stock    Descends   to    Heirs    on    Demise 

Owner    27 

Members'    Right    in    Corporation    Evi- 
denced   by    Stock    28 

Charter  Bounds  of  Corporate  Power..  29 
Corporation  Must  Keep  within  Power 

of    Charter     30 


Stockholders    Owe    Balance    on    Sub- 
scription  303 

Members  Must  Respond  to  Duty 31 

Rights    Enforced   by   Stockholders. ...  32 

Gist  Creature  of  Law   33 

Surrender  to  Law    34 

CHAPTER  III. 

ANALYSIS    OF     ARTICLES    OF     INCORPORATION. 

Three    Steps    Essential    to    Corporate 

Life     35 

Charter  Matter  Proper    36 

Powers  Vested  Right  Contract 37 

Law  Can  Not  Impair  Contract   38 

By-laws  or   Statute   Rules  of  Corpora- 
tion        39 

By-laws   Can    Not   Controvert   Charter 

or   Law    40 

Purpose     41 

Object    42 

Horizon  of  Corporate  Power 43 

Distinguished  from  Other  Associations  44 

Officers  Governed  by  By-laws   45 

Corporate  Stock  When  Paid   46 

State  Interfere  Corporate  Contract...   47 

Creditors   Come   in 48 

Corporation  Can  Not  Dissipate  Funds  49 

Stock,  Character  of   50 

CHAPTER  IV. 

INCORPORATION    ONLY    BUSINESS    INSURANCE. 

Advantages   Enumerated    51 

Compared  with  Partnerships  by  Cook.    52 
Advantages  by  Quarterly  Review  ....  523 

CHAPTER  V. 

INITIAL     ORGANIZATION     MEETING. 

Lawful    Purpose    53 

Voting  by  Incorporators.   54 

Plan    for    Incorporation    55 

Purpose  of  All  Parliamentary  Rules.. 553 

Plan  for  Formation  Meeting  56 

Object  of  Meeting   57 

Order  of  Business  Formation  Meeting  58 


:1 


CONTENTS 


Secretary's  Minutes   59 

Name   of   Corporation    60 

Capital  Stock   61 

Amount   Each   Shall   Sub'scribe    62 

Subscription    Form    63 

Character  of  Stock   Issued    64 

Common    Stock    65 

Preferred    Stock    66 

Watered    Stock    67 

Deferred   Stock    68 

Over-issued    Stock    69 

Guaranteed    Stock     70 

Duration    Corporate    Existence    71 

Corporate    Seal    72 

Testimonium    with    Seal    73 

Form    Testimonium    74 

Private   Property   Exempt    75 

Place  Transacting  Business   76 

Indebtedness   Amount    77 

Formed  Under  What  Law   78 

Comparisons    Disadvantages    of    Laws 
of   Leading    Incorporating   States.. 783 

Arizona    Territory     79 

District  of   Columbia    80 

Maine     81 

Massachusetts     82 

Connecticut     83 

New    York    84 

New    Jersey    85 

Nevada     86 

Oregon     87 

West    Virginia     88 

South    Dakota    89 

Best   Place  to  Incorporate    90 

Business  Talked  Over   91 

CHAPTER  VI. 

DRAFTING      THE      CHARTER      OR      ARTICLES  OF 
INCORPORATION. 

Conditions  Precedent  and  Subsequent.  92 

Matter    Eliminated    93 

Franchise    Property    933 

Particulars   Articles   of   Incorporation. 93b 

Powers  Eliminated   from  Charter 94 

Seal  Contract  Doctrine  Exploded 95 


Combination    Idea    96 

Ends  Reached  by  Incorporation   97 

Powers    Eliminated    from    Articles. . .  -97b 

Inalienable  Rights  Corporation    970 

Arizona  Corporate   Powers    98 

Powers    at    Common     Law    Compared 

Arizona     gSa. 

Arizona  Corporate  Laws  Analyzed ....   99 

Conditions    Precedent    100 

Arizona  Conditions  Precedent  Ana- 
lyzed   i  ooa 

Conditions    Subsequent    loob 

Presumption  of  Due  Incorporation. ..  101 

Dissolution    Corporations    loia 

Forfeiture  of  Articles  Other  Causes,  icib 

Dissolve    in    Equity    Rule loic 

Stockholders'    Liability    loid 

Incorporation  Articles    loie 

CHAPTER  VII. 

CORPORATE      STATUS      WHEN      TERRITORY      BE- 
COMES   STATE. 

Corporate  Status   102 

Vested    Property    Right    1023 

Equal  Protection  of  the  Law io2b 

Due  Process  of  Law    IO2C 

State        Inhibited        by        Constitution 

U.   S i  O2d 

Franchise  Can  Not  Be   Sold   ioae 

CHAPTER  VIII. 

ARTICLES      OF      INCORPORATION      CONTRACT. 

Threefold    Contract    icaf 

Contract  between  State  and  Corpora- 
tion   JQ3 

Contract  between  State  and  Stock- 
holders   104 

Contract  between  Stockholders  and 
Corporation  105 

Ultra  vires  Acts,  Who  May  Object...  1 06 

Contract  to  Create  Corporation 107 

Condition    Precedent    Creating    Corpo- 

•    ration      1 08 

Substantial    Compliance    109 

Directory     Provisions     no 

Conditions   Subsequent  to  Doing  Busi- 
ness      in 


CONTENTS 


111 


Corporate    Existence,    Who    May    Ob- 
ject  112 

Rule  Stated  Interest  Public  naa 

Acceptance  of  Charter    113 

CHAPTER   IX. 

Vote  at  Common  Law  One 114 

Public  Corporation  Only  One  Vote  to 

Voter    115 

Shares   Vote   Industrial   Corporations.  1 16 

CHAPTER  X. 

MAJORITY    RULE. 

Parliamentary  and  Civil  Law   117 

CHAPTER   XI. 

QUORUM. 

Majority  Who  Attend  Meeting 1 18 

Majority  in  Interest  Rule   119 

CHAPTER  XIi; 

CUMULATIVE    VOTING. 

Statutory    Invention    120 

Rule     121 

Cumulative  Voting  Trick   122 

CHAPTER  XIII. 

Proxies,  None  at  Common  Law 123 

Proxy    a    By-law,    Charter,   or   Statute 

Matter      124 

Proxy    Revocable    125 

CHAPTER  XIV. 

STOCK    WHO    HAS    RIGHT    TO    VOTE. 

Registered  Owner   126 

CHAPTER  XV. 

ORGANIZATION  OF  CORPORATIONS. 

To  Form   Corporation  One  Thing....  127 

Organization    Defined    1 28 

Organization      Matter      of      Corporate 

Business     129 

Organization  Meeting,  Where  Held...  130 
Business   Transacted    — 131 

Notice,  Form  of   132 

Notice,   Waiver   Form...  133 

for    Business    134 

Inspectors   of    Election    135 


By-law   of   Corporation    136 

Minutes  Permanent  Organization   ....137 

Directors     138 

President     139 

Seal    140 

Exchange  of  Property   141 

Books     142 

Books,    Kinds   of    143 

Signing  Minutes   144 

Republic  at  Common  Law    145 

English  Adopted  Roman  Law   146 

Organization   Another  Form  Minutes.  147 

Call  and  Waiver  Notice  Form 148 

New    York    Designation    Articles    In- 
corporation     149 

Stock  Exchange  of  Property  Form...  150 
Accepting     of     Exchange     Resolution 
Form    151 

Organization  Meeting  by  Proxy 152 

Proxy  Meeting,  How  Held   153 

CHAPTER  XVI. 

STATUTES     OF     THE     CORPORATION. 

By-laws  Are  Statutes  Corporation ....  1 54 
By-laws  Analogous  to  State  Laws....  1543 

By-laws  Must   Be   Reasonable    155 

By-law  Lien  on  Shares   156 

By-laws   as   Contract    157 

By-laws  Repeal  and  Amendment    ....  1 58 

By-law  Waiver  Ratification    i  $8a 

CHAPTER  XVII. 
DIRECTORS'    MEETING   ANY   STATE. 

Meeting   of    Directors    159 

Order  of  Business  Directors   160 

Directors'    Minutes    161 

Call  Waiver  Notice   Form   Directors. .  162 

[nspectors  of  Election   163 

Resolution  Accepting  Offer,  Sell  Prop- 
erty      164 

Resolution   Instructing  Treasurer 165 

CHAPTER  XVIII. 

OFFICERS     AND     AGENTS. 

Board   of   Directors    166 

Directors  and  Other  Officers   167 

Directors,    Power  of    168 


IV 


CONTENTS 


Directors  Limited   169 

Directors  de  facto    1 70 

Directors'   Meetings     171 

Directors'    Quorum     172 

Directors'  Meetings  Evidence  of   ....173 
Directors'     Right    to     Examine     Books 

Company    1 74 

Executive  Committee   175 

Subordinate  Officers  Corporation 176 

President     1 77 

President's   Order  of   Business 178 

Secretary     1 79 

Treasurer     1 80 

Counsel    1 8 1 

General    Manager    182 

Advisory    Board    183 

President's  Powers    184 

Vice-President    185 

Secretary  and  Treasurer   186 

Authority  of  Officers  and  Agents. ...  187 

CHAPTER  XIX. 

INCORPORATION     OF     COMPANIES. 

Who  May  Become  Incorporators 188 

Number  of  Incorporators   189 

Purpose  of   Corporation    190 

Purpose  Subordinate  to  Xational  Will.  191 

Purpose   of   Corporation    192 

Name  of  the  Corporation    193 

Domicile     1 94 

Corporate   Existence,   Who   Can   Ques- 
tion      195 

Partners'  Associates  Liable  as    196 

Powers    of    Corporation    197 

Contracting,   Mode  of    198 

Contracts  by  Agents  or  Power  of  At- 
torney      1 99 

Power  of  Attorney,   Elements  of   ....  200 

Contract  Construction    201 

Power  to   Sue    202 

Bonds   One  Character  Corporate  Con- 
tracts     203 

Acknowledgments  to  Instruments  ....20,7 

Essential    to    Admit 
to    Record     204 


Acknowledgments   Intended  to  protect- 

Creditors,    Purchasers    206 

Acknowledgments,  General  Requisites. 207 

Variance  Name  Fa- 
tal     208 

Acknowledgments,  Miscellaneous  Omis- 
sions Fatal  to  209 

Acknowledgments       Not      Aided      by 

Parol    210 

Amotion   of   Members    211 

Capital   Stock  and   Capital    212 

Subscriptions   to   Stock    213 

Stock    Issuing    214 

Stock    Watered    215 

Stock,  Methods  of  Issuing  Watered.. 216 
Stock.    Fraud   in   Issue   Creditors. . .  .2163 

Promoter     2 1 6b 

Stock    Promotion   or   Bonus    2i6c 

Stock  Assignment  of,  How  Made.... 217 
Stock    Signed    in    Blank    Filled    in    by 

Holder     218 

Dividends    215 

Scrip,    Form   of    220 

Notice   Corporate  Meeting   221 

Notice  Service  of  Corporate  Meeting. 222 

Notice  Time   Service    223 

Notice    Waiver     224 

Meetings    Adjourned    223 

Power  to  Wind  up  Corporate  Affairs. 226 
Notice   to   Officers   as   Notice  to   Com- 
pany  227 

Stockholders  Dealing  with  Corpora- 
tion   228 

Fiduciary  Relations  of  Officers  to 
Company  229 

Transactions  between  Company  and 
Officers  7 230 

Officers  Liability  to  Corporation   231 

Remedy  of  Corporation  vs.  Officers 
and  Agents  232 

Statute  of  Limitation  Fiduciary  Re- 
lation   2323 

Officers  and  Agents  Liability  Same  as 
Any  Agent  233 

Officers  and  Agents  Liability  to  Third 
Persons 234 


CONTENTS 


Officers,    Compensation   of    233 

Officers  and  Agents  Removal  by  Com- 
pany      236 

Privity,    None    between    Officers    and 
Stockholders     237 

CHAPTER  XX. 

AMENDMENT     OF     ARTICLES     OF     INCORPORA- 
TION. 

Fundamental   Requisites  Amended   ...238 

Arizona  Form  of  Amendment 239 

Amendment    by    Board    of    Directors, 
Form    240 

CHAPTER  XXI. 

EXTENSION     OF     CORPORATE     LIFE. 

Corporate  Duration  Extension 241 

CHAPTER  XXII. 

VOTING    TRUST. 

Pooling    Agreement    242 

Voting  Trust  Sustained  States   243 

Voting  Trust  Condemned  States 244 

Voting  Trust   Explained    245 

Voting  Trust  Contract  Form   246 

Voting  Trust  Certificate  Common 247 

Voting  Trust  Certificate   Preferred. .  .248 

CHAPTER  XXIII. 

REORGANIZATION. 

Reorganization  Necessity  249 

Franchise  Sale  by  Corporation  250 

Reorganization  Dissolution  Steps  ....251 
Notice  Dissolution  Reorganization  — 252 
Reorganization  Notice  Meeting  Form. 253 

Reorganization  Meeting 254 

Stockholders  Authorize  Directors  to 

Sell  2SS 

Resolution  Propose  to  Sell 256 

Resolution  Offer  to  Sell  257 

Meeting  of  Incorporators  258 

Resolution  Instructing  to  Purchase 

Assets  259 

Meeting  Board  Directors  260 

Resolution  Accepting  Proposition  ....261 


CHAPTER  XXIV. 

CONSOLIDATION     OR    AMALGAMATION     OF 
COMPANIES. 

Consolidation,  Process  of   262 

Consolidate       Resolution       Agreement 

Form     ; 264 

Consolidation  Articles  of  Form    265 

Part  IL 

FORMS. 

Introduction  to  Forms,  How  to  Fill.. 266 

Contracts,  Multiple   Forms  of   267 

Contract,  What  Should  Contain 268 

Contracts  Signature  Corporate    269 

Contracts    Beginnings    270 

Contracts  Conclude  with 271 

Contracts  Attesting  Witnessing 272 

Contracts    by    Agent    or    Attorney    in 

Fact 273 

Testimonium   Clause   Seal   Contracts.  .274 
Stockholders'    Special    Meeting    Stock- 
holders      275 

Stockholders'      Meetings,      Notice     of 

Publication    276 

Proxy,  Voting  by   2763 

Stockholders'     Special    Meeting    Min- 
utes  277 

Meeting  Adjourned  Minutes   278 

Directors'  Special  Meetings   279 

Stock,   Exchange   Property  for    280 

Stockholders'  Annual   Meeting    281 

Corporation   Formation   Forms    282 

By-laws   Forms    283 

Bonds  Corporate   284 

Deed   by   Corporation    285 

Mortgages  and  Deeds  of  Trust 286 

Chattel    Mortgages    287 

Debenture     .288 

Bond  Indemnity  by  Agent  289 

Bill  of  Sale    290 

Bill  of   Exchange    291 

Power  of  Attorney    292 

Acknowledgments    293 

Affidavit     294 

Notes  Promissory   295 


VI  CONTENTS 

Check  by  Corporation   296  Annual  Report  President   302 

Leases     297  Committee   Report  on   By-law    303 

Contract  Sale  Corporate  Stock 298  Notice   Close  Transfer   Books   304 

Released    Demand    299  Corporate   Calendar    305 

Common    Stock    300  Dissolution    Lnder    Laws    of    Arizona 

Dividend 301  Territory     306 


DIAGRAM   OF   CORPORATIONS 


i.  Public 


1.  United  States 

2.  States 

3.  Counties 

4.  Parish  Church 

5.  Parishes  (Louisiana) 

6.  Cities 

1.  Hospitals 

2.  Asylums 

I    3.  Universities 
(    4.  Colleges 


i.  Eleemosynary 


j 


i.  Domestic 
corporation 


2.  Foreign 

corporation 


2.  Private/ 


/i.  Aggre- 


gate 


2.  Lay 


3.  Tramp 

corporation 


4.  Quasi 

corporation 


Is  a  corporation  under 
the  laws  of  the  state 
or  country  only  from 
whence  its  Articles  of 
Incorporation  or  its 
charter  is  obtained. 


Is  a  corporation  oper- 
ating in  a  state  or 
country  outside  the 
meets  and  bounds  of 
its  legal  domicile,  or 
where  it  was  formed. 


Is  a  corporation  o  r- 
ganized  by  persons 
within  or  without  a 
state  or  country  for 
the  purpose  of  trans- 
acting business  with- 
out the  state  or  coun- 
try of  its  legal  domicile. 


Is  a  corporation  hav- 
ing a  part  of  the 
powers  and  faculties 
of  a  corporation. 


2.  Sole 


(  i.  Sovereign  in  England 

\  2.  Bishops 

^  3.  De — " 

/  4.  Pai 

V  5-  Vic 


3.  Deans 

Parsons 
5.  Vicar 


PART  I. 


CHAPTER  I. 
INTRODUCTION. 
Section  1.     Romans  Originated  Plan  of  Incorporation. 

Who  invented  the  scheme  of  private  property  is  lost  in 
the  obscurity  of  antiquity.  The  genius  of  the  Romans  pos- 
sibly originated  the  idea  of  the  incorporation,  some  writers 
state  as  early  at  least  as  600  B.  C.,  being  much  the  same 
as  the  incorporation  of  the  present  time.  The  American  peo- 
ple have  carried  this  invention  far  beyond  the  Romans  in 
its  industrial  scope.  Forms,  fixed  opinions,  stereotyped  for 
ages,  have  been  set  aside,  and  new  ones  made,  to  meet  the 
ever-growing  demand  of  enterprise  and  intelligence,  while 
method  has  supervised  it  all. 

§  2.     United  States  a  Pyramid  of  Corporations. 

The  United  States  was  shaped  and  molded  out  of  virgin 
country,  and  is  the  grandest  public  body  politic  and  corporate 
that  has  yet  been  erected  throughout  the  ages  of  history, 
within  which  corporate  States,  each  of  themselves  large 
enough  for  an  empire,  have  been  carved  as  pillars,  within 
which  corporate  counties,  cities,  and  towns  have  been  con- 
structed as  the  lower  superstructure,  all  resting  upon  the 
shoulders  of  the  millions  of  the  good,  the  wise,  the  learned, 
and  the  refined  people  as  the  foundation  of  this  grandest 
pyramid  of  corporations. 

§  3.     United  States  a  School  of  Corporations. 

Is  it  alarming  that  such  a  people,  schooled  in  this  Uni- 
versity of  Corporations  in  a  new  and  productive  country, 
should  devise  ways  and  means  by  which  they  could  grow 
with  its  growth,  strengthen  with  its  strength,  prefer  it  to 

2  (1) 


2  INDUSTRIAL      CORPORATIONS 

themselves  and  enjoy  its  fruits,  under  the  scheme  of  private 
property?  Logically,  therefore,  to  surround  these  resources 
and  share  their  profits,  corporations,  associations,  partner- 
ships have  been  formed,  and  all  these,  together  with  individual 
effort  combined,  have  scarcely  been  able  to  care  for  the  re- 
sources of  the  internal  and  external  commerce.  Out  of  the 
genius  of  avarice,  another  juristic  masterpiece  of  conquest 
has  been  formed,  the  "Trust."  That  it  was  a  necessity  to 
protect  vast  accumulations  already  amassed  or  to  grasp  for 
more,  is  a  matter  not  for  this  volume.  Its  discomforting 
influence  possibly  furnishes  better  food  for  the  languishing 
politician.  However,  it  undoubtedly  has  come  to  stay. 

§  4.     Incorporation  by  Act  of  the  Legislature. 

The  corporation  prior  to  A.  D.  1837,  in  all  the  States  of 
the  United  States  must  be  obtained  by  act  of  the  legislative 
authority  of  the  State  or  the  Congress  of  the  United  States. 

§  5.     First  General  Incorporation  Act  Passed  1837. 

Connecticut  passed  the  first  general  incorporation  act 
in  1837,  since  which  most  of  the  States  have  passed  acts 
quite  similar  in  their  scope.  A  classification  and  commenta- 
tion on  each  would  make  a  volume  far  beyond  the  purpose 
of  this  work,  besides  it  would  not  be  within  the  special  pur- 
pose of  this  work.  Suffice  it  to  say,  that  in  only  seven  States 
now  can  incorporation  be'  had  through  special  legislative  en- 
actments. 

§  6.     Articles  of  Incorporation  a  Contract. 

Under  the  English  laws  the  corporation  was  formed  by  a 
grant  of  authority  from  the  Crown  or  by  Parliament.  Under 
the  laws  of  the  United  States,  such  authority  was  granted 
by  the  Legislature  or  by  the  Congress.  In  either  or  in  all 
such  cases  such  authority  rested  in  the  acts  creating  the  cor- 
poration, and  some  kind  of  a  license  being  issued  also, 
such  right  or  license  was  called  the  "charter"  of  the  corpora- 
tion. Under  the  laws  as  they  now  stand  in  most  of  the 
States,  corporations  are  framed  under  general  incorporation 


INTRODUCTION  3 

laws  which  are  called  "Articles  of  Incorporation,"  or  other 
similar  name,  and  held  to  be  and  are  only  a  form  of  contract 
between  the  State,  the  corporation,  and  the  individuals  who 
compose  and  control  it,  as  will  be  hereafter  shown. 
§  7.     Granting  Charters  by  Legislatures  Abandoned. 

Few  States  retain  the  power  to  grant  charters,  and  fewer 
still  are  granted.  Charters  are,  and  have  been  found  to  be 
by  experience,  very  unsatisfactory  and  unsuited  to  a  business 
country  like  the  United  States.  As  its  rights  rested  in  the 
act  creating  it  alone,  which  must  be  changed,  if  at  all,  by 
legislative  sanction  at  its  regular  session,  while  Articles  of 
Incorporation  not  only  have  the  full  sanction  of  the  powers 
granted  by  the  general  incorporation  act,  with  all  things 
granted  that  are  not  especially  inhibited,  together  with  all 
the  powers  especially  taken  by  its  Articles  of  Incorporation  as 
well,  and  may  be  amended  at  pleasure  by  the  incorporators 
or  its  officers. 
§  8.  Incorporation  Plan  Growth. 

The  rapid  growth  of  the  corporation  as  a  plan  of  doing 
business  since  1837  is  no  less  marked  than  the  rise  and  growth 
of  any  other  form  of  progress  of  the  American  people. 

From  the  gleaner  and  reap-hook  to  the  steam  header  and 
thrasher;  the  ox  team  to  the  lightning  express;  the  bows, 
arrows,  and  flintlocks  to  the  rapid-firing  guns;  the  tallow 
candle  to  the  electric  and  incandescent  lights ;  the  rocker  pick 
and  shovel  to  the  cyanide  process ;  the  crab  to  the  seedless 
apple,  are  a  few  among  thousands  of  living  examples  that 
could  be  enumerated  of  the  progressive  genius  of  this  great 
people,  that  scarcely  comes  without  the  memory  of  one  man. 
§  9.  Lawyer  as  Business  Pilot. 

The  lawyer  to-day  who  sits  in  his  office  and  waits  for  fees 
and  statesmanship  to  run  him  down,  as  of  old,  too  often  grows 
lank  of  limb  and  lean  of  purse,  while  the  council  who  grasps 
the  spirit  of  the  times  selects  his  specialty,  acts  not  only  as 
the  lawyer,  but  as  the  business  pilot  of  the  enterprise,  is  the 
harvester  of  power  and  reward. 


4  INDUSTRIAL      CORPORATIONS 

§  10.     Prejudice  Against  Corporations  None. 

The  prejudice  that  existed  a  quarter  of  a  century  ago  or 
more  against  corporations  can  scarcely  be  now  noticed,  ex- 
cept as  it  is  kindled  in  certain  quarters  upon  a  mistaken 
state  of  facts  for  political  purposes. 

§  11.     Progression  of  Law  and  Courts. 

The  law  is  progressive,  and  our  courts  are  no  less  alive  to 
the  importance  of  rulings  coincident  with  the  spirit  of  busi- 
ness; for  instance,  the  earlier  decisions  held  that  stockholders' 
meetings  held  out  of  the  State  of  incorporation  were  abso- 
lutely void,  while  the  Supreme  Court  of  the  United  States 
now  holds  that  what  is  not  especially  inhibited  by  the  law 
is  as  much  granted  as  if  it  were  especially  given,  and  where 
the  statute  does  not  forbid  meetings  of  stockholders  out  of 
the  State,  such  meetings  may  be  held  with  impunity,  and 
in  any  event,  even  in  the  face  of  the  statutory  inhibition,  all 
stockholders  present  at  such  meetings  are  bound,  and  if  all 
are  present,  the  meeting  is  valid  as  to  all. 

§  12.     Profit. 

Profit  is  one  of  the  features  of  golden  hope.  Nothing 
could  more  effectually  snap  the  mainspring  of  life  than  to 
know  that  one  was  doomed  to  eternal  labor  with  a  constant 
decline  of  or  no  reward, 

§  13.     Incorporation  Medium  of  Profit. 

The  ever-growing  intelligence  seeks  the  most  advanta- 
geous mode  of  conducting  enterprises  that  the  greatest  profit 
may  be  reaped  with  minimized  effort  and  liability.  It  is  the 
chief  purpose  of  a  free  government  to  leave  unfettered  and 
untrammeled  the  progressive  spirit  of  its  people,  that  they 
may  be  free  to  accomplish  whatever  tends  to  better  their 
condition.  This  result  can  best  be  reached  through  the 
medium  of  incorporation. 


GENERAL     CORPORATE     ANALYSIS  5 

CHAPTER   II. 

ANALYSIS  OF  THE  CORPORATION  GENERALLY. 

§  14.     Corporation  Defined. 

First :  Defined,  a  corporation  is  a  legal  creature  existing 
solely  in  contemplation  of  law,  having  the  functions  of  a  nat- 
ural person  and  such  others  as  the  law  gives  to  make  con- 
tracts, own,  and  control  property. 

§15.     Betterment   of   Business. 

Second :  The  corporation  was  conceived  in  advantage  and 
sanctioned  by  express  enactment  for  the  betterment  of  the 
business  interests  of  mankind. 

§  16.     Existence. 

Third:    It  has  its  beginning,  its  existence,  and  its  close. 
§17.     Originates. 

Fourth :  It  originates  in  the  minds  of  one  or  more  upon 
the  given  point,  "to  incorporate." 

§  18.     Corporate  Fiction. 

Fifth :  To  incorporate,  decided,  coupled  with  a  compliance 
with  especial  legislative  sanction  or  general  enactment,  ripens 
into  or  creates  the  fiction  called  corporate  franchise,  belonging 
to  the  member  or  members  who  compose  or  own  it. 

§  19.     Legal  Existence  Distinct. 

(a)  It  is  a  distinct,  legal  existence,  being  entirely  separate 
and  apart  from  the  persons  who  created  it  or  own  it. 

§  20.     Perpetual   Succession. 

(b)  It  has  the  element  of  ''perpetual  succession."     By  this 
is  meant  that  the  corporation  retains  its  identity  as  a  legal 
entity,  even  though  its  members  may  die  or  dispose  of  their 
interests  in  it.     In   contradistinction   to  this,  the  death  of  a 
member  of  any  association  terminates  its  existence,  such  as 


O  INDUSTRIAL     CORPORATIONS 

a  co-partnership.  If  a  member  sell  his  stock  in  the  corpora- 
tion, the  purchaser  steps  into  his  shoes,  taking  all  his  rights 
and  assuming  all  his  corporate  liabilities. 

§  21.     Potential   Perpetuity. 

(c)  Generally  it  has  potential  perpetuity,  by  means  of  its 
stockholders  so  designating,  whenever  its  charter  rights  are 
about  to  expire  by  limitation  of  statutory  enactment,  unless 
limited  or  given  eternal  existence  by  law  in  the  first  instance. 

§  22.     Plenary  Power  of  State. 

(d)  Its    existence    may    be    terminated    or    closed    by    the 
members  themselves,  by  its  creditors,  or  by  the  State.     The 
inherent  plenary  power  of  the   State  to  restrain   or  dissolve 
corporations   for   illegal   conduct   is   not   unlike   its   power  to 
regulate   natural   persons.     This   is   the   police   power  of  the 
State  over  either. 

§  23.     Eminent  Domain  by  State. 

(e)  Like   a   natural   person,   its   property  or   its   franchise 
may  be  taken  by  virtue  of  the  power  of  eminent  domain  by 
the  State,  by  making  just  compensation  therefor,  which  latter 
will  also  terminate  its  existence. 

§  24.     Forming   Subscriptions   Not   Necessary. 

(f)  The    corporation    may    be    formed    by    the    individual 
members  agreeing  to  form  a  corporation.    Generally  they  then 
sign   and  acknowledge  the  Articles   of   Incorporation,   if  the 
corporate  franchise  is  obtained  through  general  incorporation 
acts.     They  may  subscribe  for  stock  before  incorporation,  or 
they  may  subscribe  for  it  afterward,  or  they   may  buy  the 
stock  from  the  corporation.     In  either  case,  whether  they  did 
or  did  not  ever  merely   subscribe  or  take  out   stock,  would 
not  affect  the  corporate  entity,  unless  a  subscription  was  made 
by  statute,  a  condition  precedent  to  its  existence,  otherwise 
it   would   exist   as   a   close   corporation    dependent   upon   the 
agreement  of  the  incorporators. 


GENERAL     CORPORATE     ANALYSIS  7 

§  25.     Subscription   Breach   Contract. 

(g)  If  he  subscribed  and  failed  to  take  the  stock,  that 
would  be  a  breach  of  his  contract  to  the  corporation  when 
it  came  into  existence. 

§  26.     Transfer  of  Stock  Ceases  to  be  Liable. 

(h)  The  corporation  being  the  owner  of  the  property  in 
which  it  deals,  and  doing  the  business,  contracting  the  debts, 
and  being  distinct  from  those  who  own  stock  in  it,  it  follows 
as  an  incident  to  the  transfer  of  its  stock  from  one  to  an- 
other that  the  assignor  remains  no  longer  liable  to  either 
his  associates  or  third  persons  for  corporate  debts,  unless  the 
transfer  is  fraudulent,  while  the  assignee  becomes  invested 
with  all  the  rights  and  liabilities  of  the  original  stockholder. 

§  27.     Stock  Descends  to  Heirs  Upon  Demise  of  Owner. 

(i)  If  the  stockholder  die,  his  property  descends  .to  his 
heirs,  with  like  effect  as  his  assignment,  without  in  any  man- 
ner disturbing  the  status  of  the  corporation. 

§  28.     Members'  Right  in  Corporation  Evidenced  by  Stock 

Owned. 

(j)  The  members'  rights  in  a  corporation  are  such  as  they 
individually  own  as  represented  by  their  stock. 

§  29.     Charter  Bounds  of  Corporate  Power. 

(k)  The  scope  of  the  power  of  the  corporation  in  its  busi- 
ness is  bounded  only  by  the  terms  of  its  charter  and  the  law. 
It  follows  as  a  beneficial  feature,  therefore,  that  the  liability 
of  a  member  is  limited  to  his  right  in  the  corporation  as 
represented  by  his  stock  under  the  law  of  the  locality  where 
the  charter  is  created. 

§  30.     Corporation  Must  Keep  Within  Power  of  Charter. 

(1)  The  stockholder  has  the  right  to  insist  that  the  cor 
poration  hazard  nothing  without  the  bounds  of  its  legal  power, 
but  keep  within  the  limit  of  its  original  object. 


8  INDUSTRIAL     CORPORATIONS 

§  30a.     Stockholders  Owe  Balance  on  Subscription. 

If,  however,  a  stockholder  pay  only  a  partial  payment  for 
his  stock,  he  would  owe  the  corporation  the  balance  in  the 
same  manner  he  would  owe  upon  a  contract  with  a  natural 
person  ;  his  owing  it  would  not  lessen  his  right  to  the  stock. 
The  unpaid  balance  on  stock  is  a  fund  to  which  creditors 
may  look  as  an  asset  for  the  payment  of  their  claims  also. 

§  31.     Members  Must  Respond  to  Duty. 

(m)  Acting  as  it  can,  only  by  and  through  its  agents,  a 
corporation  must  rely  on  its  members  to  respond  to  such 
proportional  share  of  the  duties  imposed  upon  them  by  law. 
Individual  members  are  not  bound  to  submit  to  every  act 
even  of  those  in  management  or  control. 

§  32.     Rights  Enforced  by  Stockholders. 

(n)  A  stockholder  may  sue  for  and  enforce  rights  in  which 
the  corporation  has  an  interest,  in  which  the  corporation  re- 
fuse to  act,  or  silence  action  of  the  majority  when  not  within 
the  scope  of  the  charter.  This  is  an  essential  and  beneficial 
right  to  stockholders. 

§  33.     Gist,   Creature  of  Law. 

(o)  The  real  gist  of  a  corporation  is  that  it  is  a  creature 
of  law,  created  by  or  within  the  express  act  of  the  State, 
without  which  sanction  it  does  not  exist. 

§  34.     Surrender  to  Law. 

(p)  A  corporation  must  surrender  to  the  general  law  of 
liability,  as  other  associations  and  individuals  do. 


SPECIAL    CORPORATE    ANALYSIS  9 

CHAPTER    III. 

ANALYSIS   OF  ARTICLES   OF  INCORPORATION. 

§  35.     Three  Steps  Essential  to  Corporate  Life. 

1.  The   first  step  toward  incorporation   is  the  agreement 
between  the  parties  to  incorporate. 

§  36.     Charter  Matter  Proper. 

2.  The  second  step  is  a  compliance  with  the  essential  con- 
ditions  precedent   of   legislative   enactment   of   the   State   or 
country  where  the  articles  are  to  be  obtained,  which  last  con- 
stitute the  charter  matter  proper.    These  essentials  completed, 
erects  the  designed  creation,  or  legal  entity,  or  granted  fran- 
chise intended  by  the  State,  and  named  a  corporation.     This 
legal  existence,  planted  and  germinated,  its  power  may  be 
understood  by  an  analysis  of  the  rights  granted  by  the  State. 

§  37.     Powers  Vested  Right  of  Contract. 

3.  These  rights  arising  by  virtue  of  an  agreement  between 
the  incorporators,  coupled  with  an  acceptance  of  the  tendered 
franchise  by  the  State  through  its  special  law  or  general  en- 
abling act,  may  be  said  to  be,  and  are,  essentially  and  properly 
a  valid  and  subsisting  contract,  signed,  sealed,  and  delivered, 
and  become  in  so  far  a  vested  right  as  to  yield  only  to  such 
burdens  as  arise  out  of  the  police  power  or  upon   inherent 
grounds  of  public  policy  or  by  such  reservation  in  the  law 
as  the  associating  members  have  assented  to. 

§  38.     Law   Can  Not   Impair  Contract. 

4.  It  is  its  contract  feature  with  the  State  that  furnishes 
the  ingredential  fact  that  arouses  the  constitutional  protec- 
tion that  the  right  of  contract  shall  be -held  inviolate.     That 
no  law  shall  be  passed  impairing  the  obligation  of  a  contract, 
and   in    this   it  is   distinguished  from   all  other   associations. 
The  law,  regulating  the  mode  or  form  of  the  exercise  of  its 


10  INDUSTRIAL     CORPORATIONS 

contract  rights  may  be  amended  or  repealed,  but  it  can  not 

affect  the  corporation   rights   thereunder.     They   remain   the 

same. 

§  39.     By-laws  or  Statute  Rules  of  Corporation. 

5.  The  operation  of  the  corporation  involves  the  exercise 
of  the  corporate  power,  the  regulation   of  the  organization, 
and  the  operation  of  its  agents  and  officers,  and  its  affairs  are 
designated  by  rules  adopted  by  the  stockholders,  called  by- 
laws, under  Roman  law  called  statutes.     In  a  certain  sense, 
the   stockholders   within   the   corporate   power  become   a   de- 
liberate assembly,  and  are,  as  such,  a  law  unto  themselves. 
Usually  they  follow  parliamentary  rules  of  order. 

§  40.     By-laws  Can  Not  Controvert  Charter  or  Law. 

6.  By-laws  can  not  controvert  charter  matter  nor  express 
law,  but  are  subservient  to  both,  and  must  be  reasonable  to 
be  valid. 

§  41.    Purpose. 

7.  The  purpose  of  a  corporation  as  to  its  members  and 
the  purpose  of  the  State  in  sanctioning  its  formation  rather 
invite  an  appeal  to  the  wisdom  of  the  institution  than  to  its 
analytical  parts.     Certainly  the  corporation  offers  undoubted 
advantages  over  any  other  association  of  individuals.     The 
corporation   may,   in   general,   do   anything  a   natural   person 
can   in   the   way   of   business,   and   in    many   localities,   as   in 
Arizona,  it  possesses  power  in  addition  to  those  of  a  natural 
person. 

§  42.     Object. 

8.  The  real  object  of  the  corporation  is  immediately  ex- 
pressed in  the  articles,  and  to  carry  out  that  particular  enter- 
prise is  legitimately  its  proper  limit,  beyond  which  it  can  not 
go  without  transcending  its  power  and  its  act  becomes  void. 
However,  acts  beyond  its  corporate  limit  as  to  third  persons 
will   be   upheld,   not   on   the   ground   of   corporate   extension, 
but,  having  received  the  benefit  and  created  the  liability,  it 
would  be  estopped  from  taking  advantage  of  its  own  act  by 


SPECIAL     CORPORATE     ANALYSIS  11 

seeking  to  shield  behind  the  lack  of  power  in  its  charter  to 
do  the  particular  transaction. 

§  43.     Horizon  of  Corporate  Power. 

9.  The  corporation  has  power  precisely  to  carry  out  the 
business  purpose  expressed  in  its  charter,  and  power  for  noth- 
ing else,  except,  also,  incident  thereto,  to  wind  up  its  own 
affairs.     The  legal  horizon  of  a  corporation  is  that  of  a  nat- 
ural  person,  except   such   special   power  in   addition   thereto 
as  is  granted  by  the  Legislature.     Its  right  can  go  no  further 
even  on  the  line  of  the  right  of  a  natural  person,  except  as 
to  property.     It  may  be  granted  the  right  of  eminent  domain 
by  the  State. 

§  44.     Distinction  of  Corporation  from  Other  Associations; 
Majority  Stock. 

10.  The  property  of  a  corporation,  once  acquired,  and  its 
management,  show  a  distinction  to  other  individual  associa- 
tions.    A  corporation  lives  and  draws  its  life  from  its  stock- 
holders.    They  are  that  of  which  it  is  composed,  their  exact 
interest   being   expressed   by   their   ownership   of  stock.      Its 
operation  must  proceed  from  them,  not  necessarily  by  unani- 
mous consent,  but  by  majority  of  the  stock,  and  not  by  a 
majority  of  the  individuals  who  own  the  stock.     It  would, 
however,  be  cumbersome  if  it  required  the  unanimous  con- 
sent, hence  the  majority  rule.     This  even  becomes  cumber- 
some and  expensive,  and   is  again   reduced   to  other  agents 
created  by  the  stockholders,  called  a  board  of  directors,  and 
as  they  are  more  or  less  inexpedient,  other  agents  are  created 
more  effectually  to  attend  economically  to  the  role  of  busi- 
ness, known  as  an  "executive  committee,"  to  relieve  the  board 
of  directors,  while  still  others,  called  a  president,  secretary, 
and  treasurer,  and  sometimes  an  agent  called  a  general  man- 
ger, relieve  the  president  and  other  officers  of  the  corporation 
of  many  duties  otherwise  devolving  upon  them. 

§  45.     Officers  Governed  by  By-laws. 

11.  The  by-laws  regulate  the  specific  duties  of  these  officers 
and  agents  in  their  dealings  and  contracts.     However,  any 


12  INDUSTRIAL     CORPORATIONS 

agents'  acts  may  be  ratified  by  the  directors,  it  then  becomes 
the  corporate  act  and  binds  the  company.  Properly,  all  con- 
tracts entered  into  by  the  corporation  when  it  is  intended 
to  be  shown  upon  their  face  that  they  are  done  as  corporate 
acts,  are  executed  by  its  corporate  name  and  its  seal.  How- 
ever, its  seal  may  be  any  scrawl  or  indenting  instrument,  and 
can  be  changed  at  pleasure.  It  is  a  formal  proceeding,  and 
may  be  dispensed  with  except  on  such  papers  as  a  natural 
person  would  have  to  use  a  seal.  Its  name  as  well  as  its 
seal  is  a  means  of  its  identification,  without  which  it  would 
not  be  its  contract  or  its  acts  certainly  upon  their  face,  but 
would  require  evidence  dchors  the  contract  to  show  the  con- 
tract that  of  the  Corporation. 

§  46.     Corporate  Stock  When  Paid. 

12.  The   capital   stock   of  a   corporation   may   vary   as   to 
the  times  when  and  manner  of  its  payment.    In  some  localities 
part  or  all  must  be  paid  as  a  part  of  the  corporate  essential 
function,  while  in  others  it  may  be  paid  in  after  incorporation 
as   well,  and  only   in   part   if  they   wish,   leaving  the   stock- 
holder to  owe  the  corporation  for  a  balance  on  stock.     The 
corporate  creditors  would  have  resort  to  this  fund  also.    These 
funds,   however,   must   not   be   diverted   from   the    proximate 
purpose  of  the  corporation,  and  any  shareholder  may  inter- 
pose and  stop  a  diversion  of  the  corporate  assets  from  the 
real   object   of   the   corporation,   even    though    that   diversion 
were  authorized  by  a  majority  of  the  stock. 

§  47.     State  Interfere  in  Corporate  Contract. 

13.  The  corporate  contract,  being  one  with  the  State,  it 
also   may   interfere   if   the   corporation   be   one   in   which   the 
public  are  interested. 

§  48.     Creditors  Come  In. 

14.  The  creditor  may  resist  a  misapplication  of  the  cor- 
porate funds,  as  to  him  that  is  the  only  asset  to  which  he  has 
recourse. 


SPECIAL    CORPORATE    ANALYSIS  13 

§  49.     Corporation  Can  Not  Dissipate  Funds. 

15.  It  would  be  most  inequitable  to  allow  the  corporation 
to  dissipate  its  funds  in  foreign  enterprises  and  send  its  credi- 
tors out  empty  handed. 

§  50.     Stock   Character  of. 

16.  A  corporation  may  issue  stock.     Stock  may  be  com- 
mon, preferred,  or  guaranteed  preferred.     It  issues  its  stock 
in  payment  for  the  property  it  acquires  from  its  incorporators 
or  otherwise.     Stock  is  the  evidence  of  its  holder's  interest 
in  the  company.     Common  stock  is  the  ordinary  stock  issued 
by  any  corporation.     Preferred  stock  is  so  called  because  it 
has   some  sort  of  an   advantage   over   ordinary   or   common 
stock.     Usually  the  preference  is  to  participate  in   the  divi- 
dends to  a  certain  amount  even  though  it  takes  the  entire 
dividend  or  more  to  meet  it.     Preferred  stock  may  be  guaran- 
teed to  receive  so  much  out  of  the  dividend,  and  is  then  called 
guaranteed   preferred.      Such    stock    is    sometimes    issued   to 
raise  money  rather  than  bond  or  mortgage.     Some  corpora- 
tions have   the   charter  power  to   issue   preferred  stock.     If 
not,  it  is  left  to  the  stockholders,  in  which  all  must  concur. 
Some  courts  hold  the  issuing  of  preferred  stock  is  an  inci- 
dent to  the  right  of  the  corporation  to  borrow  money,  espe- 
cially when  such  stock  is  to  be  redeemed.    These  suggestions 
are  not  intended  to  be  an  exhaustive  analysis  of  a  corporation, 
but  to  show  some  of  its  principal  features. 


14  INDUSTRIAL     CORPORATIONS 

CHAPTER    IV. 

INCORPORATION   ONLY   BUSINESS   INSURANCE. 

§  51.     Advantages  of  Corporate  Insurance  Enumerated. 

First:  Your  business  is  kept  private,  as  the  corporation 
is  a  distinct,  legal  existence  in  and  of  itself.  It  owns  the 
property  and  the  stockholder  owns  stock  in  the  corporation  as 
distinct  from  the  property. 

Second:  It  has  "perpetual  succession,"  which  means  if  a 
member  sell  out  or  die  the  corporation's  business  is  not  dis- 
turbed, but  goes  on. 

Third :  It  has  potential  perpetuity ;  that  is,  the  stockhold- 
ers may  give  it  eternal  existence  by  extending  it  before  the 
time  its  limitation  expires. 

Fourth :  It  is  optional  with  its  members  to  terminate  its 
existence.  They  may  terminate  the  corporation  any  time  and 
wind  its  affairs  up. 

Fifth :  Private  property  can  be  exempt  from  corporate 
liability  or  debts. 

Sixth :  You  may  lose  what  you  pay  for  the  stock  should 
the  debts  of  the  company  become  large  enough  to  consume 
its  assets,  but  no  more. 

Seventh  :  Upon  a  stockholder's  demise,  his  stock  descends 
to  his  heirs  without  disturbing  the  corporate  status,  under 
the  laws  of  descent  and  distribution. 

Eighth :  Stockholders  can  insist  on  the  business  remain- 
ing within  the  limit  of  the  charter,  and  can  enforce  that  right 
by  injunction  against  the  majority. 

Ninth :  Stockholders  may  enforce  rights  that  belong  to  it 
that  the  corporation  or  directors  refuse  to  enforce. 

Tenth :  Its  charter,  or  Articles  of  Incorporation,  is  a  con- 
tract with  the  State,  and  this  brings  out  the  constitutional 
protection  that  the  right  of  contract  shall  not  be  abridged 
but  held  inviolate,  and  hence  no  subsequent  act  of  the  State 


INCORPOKATlpN     BUSINESS     INSURANCE  15 

can  impair  the  charter  matter,  unless  such  right  is  reserved 
by  the  laws  under  which  the  corporation  is  formed. 

Eleventh :  It  can  do  anything  a  natural  person  can  do  as 
to  property. 

Twelfth :  No  stockholder  can  dispose  of  the  entire  corpo- 
rate property ;  he  can  sell  only  his  stock.  There  is  no  hazard. 

Thirteenth :  No  stockholder  or  other  agent  of  a  corpora- 
tion can  appropriate  the  funds  of  the  corporation  without 
being  both  civilly  and  criminally  liable.  A  partner  can  sell 
it  all  and  appropriate  it  without  being  criminally  liable.  Dam- 
ages might  prove  fruitless,  and  all  be  lost.  * 

Fourteenth :  It  enables  a  large  business  to  be  carried  on 
through  agents. 

§  52.     Incorporation   Compared  with  Partnership,  by   Cook. 

Mr.  Cook  on  corporations  states  certain  advantages  which 
a  corporation  receives  as  compared  with  a  co-partnership : — 

"In  large  enterprises,  the  partnership  has  been  found  to  be 
clumsy,  dangerous,  and  insufficient.  If  unsuccessful,  it  brings 
ruin  upon  all  of  its  members,  because  each  partner  is  liable 
absolutely  for  all  debts.  Any  member  will  bind  the  firm  by 
his  contract,  and  each  one  has  an  equal  voice  in  deciding  its 
policy.  Its  capital  and  credit,  consequently  its  amount  of  busi- 
ness, are  limited  necessarily  by  the  capital  and  credit  of  a 
very  few  men, — the  members  themselves.  The  death,  of  a 
member  or  the  transfer  of  his  interests  dissolves  the  firm. 
Any  member  may  arbitrarily  cause  a  dissolution  at  any  time, 
and  the  insolvency  of  a  member  renders  the  partnership 
property  subject  to  levy  of  execution  for  its  debts. 

"Upon  the  death  of  a  partner,  the  surviving  partners  have 
the  sole  charge  of  winding  up  the  b.usiness,  and  the  executor 
of  the  deceased  partner  is  not  allowed  to  come  in.  A  partner 
may  withdraw  his  money  only  at  a  sacrifice  or  by  long  and 
expensive  proceedings.  He  can  not  conveniently  sell  his  in- 
terest or  borrow  money  upon  it.  New  partners  can  not  readily 
or  safely  be  admitted. 

"The  partnership  is  restricted  in  its  capital,  dangerous  in  its 
liabilities,  narrow  in  its  exclusion  of  new  members,  too  free 
in  its  mode  of  making  contracts,  and  too  contracted  in  its 
opportunities  for  withdrawal.  It  is  becoming  obsolete  as  a 
mode  of  doing  business  on  a  large  scale. 


16  INDUSTRIAL     CORPORATIONS 

"In  a  corporation  all  of  this  is  changed.  The  members  are 
not  liable  for  the  debts.  The  amount  already  invested  may 
be  lost,  but  the  private  fortunes  of  the  stockholders  are  not 
involved.  The  business  is  done  and  contracts  made,  not  by 
all,  but  by  a  select  few,  called  directors.  A  large  capital  is 
created  by  the  union  of  funds  from  many  sources.  A  person 
may  safely  invest  in  many  enterprises  and  yet  not  take  part 
in  the  business  management  nor  watch  the  business  of  any 
one  of  them.  The  leading  spirit  in  an  enterprise  may  hold  a 
majority  of  the  stock  and  may  admit  associates,  employees, 
or  strangers  as  holders  of  a  minority  of  the  stock,  and  yet  he 
will  retain  the  management  as  though  he  were  the  single 
owner  of  the  concern.  Persons  may  easily  buy  into  or  retire 
from  the  enterprise.  Dissolution  is  not  brought  about  by  the 
death  or  withdrawal  or  dissatisfaction  of  a  stockholder.  The 
insolvency  of  a  stockholder  does  not  effect  the  business  of  a 
corporation.  Upon  the  death  of  a  stockholder,  his  executor 
votes  his  stock  and  has  a  voice  in  the  continuation  of  the  busi- 
ness. A  stockholder  may  sell  or  pledge  his  interest  readily 
and  intelligibly  by  reason  of  the  reports,  dividends,  and  mar- 
ket quotations  of  his  stock.  The  corporation  is  a  protection 
in  that  the  liability  is  limited ;  it  is  capable  in  that  it  renders 
possible  the  collection  of  a  great  capital ;  it  is  efficient  because 
the  directors,  and  they  alone,  govern  its  policy  and  its  con- 
tracts; and  it  is  convenient  because  it  is  easy  to  sell  or  buy 
or  pledge  or  bequeath  one's  interest  in  the  concern." 

§  52a.     Advantages  of  Incorporation  by  Quarterly  Review. 

The  advantages  of  incorporation  are  set  forth  in  the  "Law 
Quarterly  Review"  for  April,  1895  (p.  185),  as  follows:— 

"Incorporation  secures  first  of  all  the  benefit  of  limited 
liability.  It  further  preserves  the  continuity  of  the  partner- 
ship unaffected  by  the  death,  lunacy,  or  bankruptcy  of  the 
members,  or  by  other  contingencies.  It  minimizes  the  dan- 
gers of  a  dishonest  partner  by  restricting  the  agency  of  the 
directors  in  articles  of  which  all  persons  dealing  with  the 
company  have  constructive  notice.  It  facilitates  dealing  with 
the  shares  of  the  partners  by  sale,  mortgage,  or  settlement. 
It  affords  greater  facilities  for  borrowing,  more  particularly 
for  raising  money  on  debentures.  A  shareholder  who  lends 
money  to  the  company  is  not  at  the  disadvantage  of  being 
postponed  to  other  creditors  as  an  ordinary  partner  is  who 
lends  to  the  firm." 


INITIAL     MEETING  17 


CHAPTER  V. 

ORIGINAL  INCORPORATION  OR  INITIAL  ORGANI- 
ZATION MEETING 

§  53.     Lawful  Purpose  of  Corporation. 

From  a  legal  standpoint,  it  may  not  be  unwise  to  suggest 
that  the  corporation  must  not  be  illegal:  (1)  as  agairrst  public- 
policy  ;  (2)  in  restraint  of  trade ;  (3)  nor  pertain  to  immo- 
rality ;  and  whatever  may  be  the  terms  of  the  charter  or 
articles  agreed  upon,  it  must  not  be  forgotten  that  the  law 
under  which  it  is  to  be  created  enters  into  it,  governs  and 
controls  it  just  as  much  as  if  it  had  been  written  into  it,  for 
the  reason  that  it  being  a  contract  it  is  on  the  same  legal 
plane  of  any  other  contract  in  the  eye  of  the  law.  In  Arizona 
Territory  and  some  other  States,  the  only  limitation  is  that  the 
corporation  must  be  created  for  a  "lawful  purpose." 

§  54.     Voting  by  Incorporators  or  Stockholders. 

Deliberative  assemblies  move  and  transact  their  business 
by  and  through  the  will  of  the  assembled  body.  That  will 
is  ascertained  by  means  of  motions,  resolutions,  and  various 
propositions  submitted  orally  or  in  writing. 

The  will  of  the  assembly  is  expressed  by  vote. 

Voting  is  done  in  three  ways : — 

1.  By  show  of  hands  or  standing  vote. 

2.  By  the  living  voice,  or  viva  vocc,  of  the  ayes  and  nays. 

3.  By  ballot,  this  by  means  of  writing  the  expression  of 
the  voters'  desire  on  paper  and  handing  it  to  the  secretary, 
inspector,  or  teller. 

In  incorporations  at  the  common  law,  one  vote  was  al- 
lowed to  each -individual,  regardless  of  the  number  of  shares 
he  owned. 

Under  our  law  it  is  the  universal  custom  to  follow  the 
idea  of  majority  rule,  or  the  one  who  has  the  greater  interest 


18  INDUSTRIAL     CORPORATIONS 

vote  all  the  interest  that  he  has,  hence  the  rule  of  voting  ac- 
cording to  the  number  of  shares  owned  by  a  stockholder  as 
representing  the  amount  of  interest  held. 

§  55.     Plan  for  Incorporation. 

It  is  scarcely  important  to  lay  down  any  form  of  procedure 
by  which  the  first  meeting  of  those  who  desire  to  form  a 
corporation  is  to  be  conducted,  as  the  usual  parliamentary 
law  governing  all  deliberative  bodies  or  assemblies  is  so 
well  understood  that  it  will  be  sufficient  here  to  say  that 
every  assembly  is  a  law  unto  itself,  and  can  proceed  under 
any  code  of  parliamentary  rules  deemed  necessary  by  it  to 
its  own  control,  or  it  can  proceed  without  any  rules,  or  they 
can  talk  the  matter  over  in  any  manner  they  see  fit. 

§  55a.     Purpose  of  All  Parliamentary  Rules. 

"The  great  purpose  of  all  rules  and  forms  is  to  subserve 
the  will  of  the  assembly  rather  than  to  restrain  it ;  to  facili- 
tate, and  not  to  obstruct,  the  expression  of  their  deliberate 
sense." — Robert's  Rules  of  Order,  p.  125. 

§  56.     Plan  Suggested  for  Formation  Meeting. 

However,  after  the  members  who  are  interested  have  all 
gathered  at  the  appointed  place,  and  the  time  having  arrived, 
some  member  may  arise  in  his  place  or  step  to  the  front, 
and  say:  "The  meeting  will  please  come  to  order;  I  move 
that  Mr.  A.  act  as  chairman  of  this  meeting."  Some  one 
else  may  say,  "I  second  the  motion."  The  first  .member  then 
puts  the  question  to  vote  by  saying,  "It  has  been  moved  and 
seconded  that  Mr.  A.  act  as  chairman  of  this  meeting;  those 
in  favor  of  the  motion  will  say  'aye ;'  "  and  when  the  affirma- 
tive vote  is  taken,  he  says,  "Those  opposed  will  say  'no.' " 
If  the  majority  vote  in  the  affirmative,  he  says,  "The  motion 
is  carried ;  Mr.  A.  will  take  the  chair."  If  the  motion  is  lost, 
he  announces  that  fact,  and  calls  for  the  nomination  of  some 
one  else  for  chairman,  and  proceeds  with  the  new  nomination 
as  in  the  first  case  until  a  chairman  is  chosen. 

The  above  is  purely  formal,  and  may  be  dispensed  with, 
and  often  is  in  the  manner  that  some  one  simply  arises  and 


INITIAL     MEETING  19 

announces  that  he  appoints  Mr.  A.  to  act  as  chairman  of  the 
meeting.  Mr.  A.,  upon  taking  the  chair,  will  in  turn  announce 
that  he  appoints  Mr.  B.  as  secretary,  or  Mr.  A.  may  call 
upon  the  meeting  to  elect  a  secretary.  In  any  manner  that 
the  meeting  may  see  fit  to  proceed,  its  result  will  be  that  it 
begins  its  organization  by  a  chairman  pro  tern  and  a  secretary 
pro  tern.  The  organization  will  now  be  ready  for  business 
temporarily.  These  two  officers  will  constitute  all  the  officers 
necessary  for  conducting  the  meeting.  When  the  secretary 
is  elected  or  appointed  and  installed  with  the  necessary  pa- 
pers, etc.,  to  enable  him  to  take  down  notes  of  the  proceed- 
ings of  the  meeting,  he  will  usually  take  his  seat  near  the 
chairman,  so  as  to  hear  readily  every  step  of  the  proceedings. 
This  done,  the  chairman  will  ask,  "What  is  the  further  pleas- 
ure of  the  meeting?" 

§  57.     Object  of  the  Meeting. 

The  first  matter  that  will  likely  come  before  the  meeting 
will  be  the  object  of  the  meeting.  The  chairman  may  state 
the  object  of  the  meeting  or  he  may  call  upon  some  one  to 
state  the  object  of  the  meeting. 

In  the  formation  of  corporations,  it  possibly  will  be  so 
well  understood  among  the  members  that  the  stating  of  the 
object  of  the  meeting  may  be  dispensed  with  unless  it  is  the 
desire  of  the  meeting  to  enter  upon  a  joint  discussion  of  the 
objects  of  the  corporation  they  expect  to  form ;  or  some  mem- 
ber may  want  information  in  regard  to  the  object  of  the  cor- 
poration, or  upon  some  question  that  is  not  quite  clear  to 
him  or  them.  This,  the  object  of  the  meeting  once  stated 
or  understood  and  out  of  the  way,  the  next  matter  logically 
in  order  for  discussion  will  be  to  descend  to  the  particulars 
that  are  to  enter  into  the  formation  of  the  corporation  proper, 
which  usually  are  : — 

§  58.     Initial  Meeting  Order  of  Business. 

1.  Its  name. 

2.  Capital  stock  and  capital. 

3.  Amount  each  shall  subscribe,  and  how  and  when  the 


20  INDUSTRIAL     CORPORATIONS 

same  shall  be  paid  into  the  company,  and  form  of  subscrip- 
tion, or  whether  subscription  is  necessary  as  a  "condition 
precedent"  or  not.  If  not,  need  not  be  in  articles  nor  made. 

4.  Character  of  stock  to  be  issued. 

5.  Term  of  the  corporate  existence. 

6.  Corporate  seal. 

7.  Whether  private  property  is  to  be  exempt  from  corpo- 
rate debts. 

8.  Place  or  piaces  where  principal  office  shall  be  kept  and 
the  business  transacted. 

9.  Amount  of  indebtedness  the  corporation  shall  incur,  if 
any. 

10.  Under  the  laws  of  what  Territory,  State,  or  country 
the  company  shall  be  formed. 

These  various  heads  will  be  discussed  and  minute  entries 
made  of  the  result  of  the  deliberation,  together  with  the  rea- 
sons therefor,  just  the  same  as  if  the  meeting'  had  actually 
happened,  and  all  matters  pointed  as  a  guide  and  an  illustra- 
tion for  those  desiring  to  form  a  corporation.  It  is  not  to  be 
understood  that  the  suggestions  may  not  be  varied  to  suit 
the  wish,  judgment,  or  convenience  of  the  incorporators. 

Some  legal  suggestions  are  made  about  each  topic  to  bet- 
ter its  understanding : — 

§  59.     Secretary's    Minutes    of    Formation    Meeting,    Form 
No.  4. 

The  plan  of  the  secretary's  minutes  as  here  set  out  is  not 
intended  to  be  a  set  form  of  minutes,  as  the  secretary  can  use 
any  plan  that  he  deems  advisable,  and  this  is  only  suggested 
as  something  to  aid  him  in  preparing  his  first  minutes.  The 
secretary  can  state  in  his  minutes:  First,  "That  at  a  meeting 
at  the  office  of  John  Jones,  Esq.,  25  Canal  St.,  St.  Louis,  Mo. 
(or  wherever  the  meeting  is  held),  for  the  purpose  of  forming 
a  corporation,  there  were  present  Mr.  A.,  Mr.  B.,  Mr.  C.,  Mr. 
D.,  and  Mr.  E." 

Second,  "On  motion  of  Mr.  B.,  Mr.  A.  was  elected  chair- 
man. On  motion  of  Mr.  C.,  Mr.  D.  was  elected  secretary 


INITIAL     MEETING  21 

pro  tern."  (The  members  of  the  meeting  then  proceeded  to 
discuss  the  formation  of  the  corporation  under  the  various 
heads  above  suggested.) 

Third,  "On  motion  of  Mr.  C.,  the  meeting  unanimously 
decided  that  the  name  of  the  corporation  to  be  formed  should 
be,  'The  Leap  to  Light  Mining  Company.'  " 

The  above  entries  show  only  what  was  done,  and  this  is 
usually  sufficient,  but  if  any  matter  of  grave  importance  should 
come  up,  it  may  become  proper  to  state  what  each  member 
said.  A  like  entry  may  be  made  by  the  secretary  in  his 
minutes  when  the  assembly  decide  upon  any  matter.  Simply 
state  in  plain  and  concise  language,  in  condensed  form,  what 
was  done  or  what  was  actually  said  and  done,  or  the  substance 
of  what  was  said  and  done. 

§  60.    Name  of  the  Corporation. 

A  corporation  being  a  person  in  law,  like  a  natural  person, 
must  have  a  name,  by  which  it  is  identified,  known  and 
transacts  all  its  business.  Sometimes  there  are  statutory 
enactments  regarding  a  corporate  name,  and  if  so,  the  statute 
of  that  State  must  be  looked  to  in  that  regard.  At  common 
law,  a  corporation  can  not  adopt  the  name,  or  substantially 
the  name,  of  some  other  corporation  chartered  by  the  same 
State.  Otherwise  than  this,  the  members  of  the  corporation 
may  choose  any  name  that  they  see  fit.  When  a  name  has 
once  been  selected,  it  can  not  be  changed  except  by  legisla- 
tive sanction  by  an  amendment  to  its  charter  or  Articles  of 
Incorporation. 

§  61.     Capital  Stock. 

Fourth,  "The  capital  stock  of  the  company  was  decided  to 
be  100,000  shares  of  the  par  value  of  $1.00  each." 

The  above  quotation  would  cover  what  was  done  by  the 
members,  and  will  be  a  sufficient  minute  entry  on  the  subject 
of  "capital  stock." 

The  capital  stock  of  a  corporation  is  the  amount  sub- 
scribed in  money,  or  any  other  kind  of  property,  by  those 
who  take  stock  in  the  corporation.  Subscriptions  may  be 


22  INDUSTRIAL     CORPORATIONS 

taken  at  the  incorporation  meeting  or  subscriptions  may 
be  taken  after  the  corporation  is  organized,  or  its  stock  may 
be  sold  for  cash,  or  exchanged  for  property  of  any  character, 
or  labor,  and  whatever  is  received  therefor  will  go  into  the 
corporation  as  its  capital  stock.  The  capital  stock  of  a  com- 
pany will  always  remain  the  same,  and  should  there  be  an 
increase  in  property  of  any  character,  the  increase  plus  the 
original  property  received  by  the  company  will  constitute  its 
entire  "capital,"  and  in  that,  a  distinction  is  drawn  between 
capital  and  "capital  stock." 

The  "capital"  of  the  company  may  fluctuate,  but  the  "capi- 
tal stock"  will  remain  the  same. 

§  62.     Amount  Each  Shall  Subscribe. 

The  amount  of  the  "capital  stock"  that  each  of  the  mem- 
bers shall  subscribe  will  be  designated  by  them  in  some  man- 
ner, and  whether  subscribed  before  or  after  incorporation,  the 
minute  entry  may  be  in  the  following  forrn : — 

§  63.     Subscription,  Form  of,  No.  2. 

St.  Louis,  Mo.,  Jan.  1,  A.  D.,  1904. 

Fifth,  "We,  the  undersigned,  hereby  severally  subscribe 
for  and  agree  to  take  at  its  par  value  the  number  of  shares 
of  the  capital  stock  of  the  Leap  to  Light  Mining  Company, 
set  opposite  our  respective  names,  and  agree  to  pay  there- 
for in  cash  (or  in  whatever  way  they  agree  to  pay)  on  de- 
mand of  the  treasurer  as  soon  as  said  company  is  organized. 

Name                          Address  Shares  Amount 

Mr.  A.  St.   Louis,  Mo.  10,000  .  $10,000.00 

Mr.  B.  San    Francisco,  Cal.            30,000  30,000.00 

Mr.  C.  Denver,  Colo.  20,000  20,000.00 

Mr.  D.  St.   Louis,  Mo.  20,000  20.000.00 

Mr.  E.  St.  Louis,  Mo.  20,000  20,000.00 

This  form  of  subscription  list  is  not  a  set  form  but  may 
be  varied  to  suit  the  subscriber,  as  there  is  no  set  form  by 
which  a  subscription  may  be  made.  Subscriptions  are  a  mat- 
ter of  contract  between  the  subscribers  to  the  corporation.  If 


INITIAL     MEETING  23 

this  subscription  contract  is  entered  into  before  the  corpora- 
tion is  formed,  it  will  ripen  into  a  contract  with  the  corporation 
the  instant  the  corporation  is  formed,  and  which  contract  may 
be  enforced  by  the  corporation  only.  It  can  not  be  enforced  as 
between  the  members  of  the  corporation,  that  is,  one  subscriber 
against  another.  If  any  member  should  fail  to  pay  his  sub- 
scription, the  only  way  in  which  the  contract  could  be  en- 
forced would  be  in  the  name  of  the  corporation.  If,  however, 
the  subscription  is  made  after  the  corporation  is  formed,  it 
is  then  a  contract  direct  with  the  corporation,  and  is  like 
any  other  contract,  and  becomes  binding-  upon  the  parties 
the  moment  it  is  made  or  entered  into. 

A  subscription  to  the  capital  stock  of  a  corporation, 
either  before  or  after  incorporation,  is  distinguished  from  a 
sale  of  the  shares.  The  purchaser  of  the  shares  at  once 
becomes  a  stockholder,  but  he  never  becomes  a  subscriber. 
In  the  case  of  the  subscription,  if  the  corporation  fails  to  issue 
the  stock  or  tender  the  stock,  this  does  not  prevent  the  sub- 
scriber from  becoming  a  stockholder  with  all  the  legal  rights 
and  liabilities  of  any  stockholder,  unless  there  is  an  agreement 
to  the  contrary.  The  sale  of  stock  stands  upon  the  same 
grounds  as  the  sale  of  any  other  property,  and  tender  of  the 
certificates  must  be  made  to  the  purchaser  in  order  to  main- 
tain an  action  for  the  price.  Various  forms  of  subscriptions 
are  made,  but  it  will  be  found  that  they  are  all  contracts,  and, 
like  any  contract,  rest  upon  the  intention  of  the  parties  to 
the  contract,  and  when  there  is  sufficient  in  the  manner  of 
subscription  to  show  the  intent  of  the  parties,  it  will  be  suffi- 
cient in  form  that  the  contract  may  be  enforced  or  it  may  be 
entered  into  by  parol,  or  if  one  merely  takes  the  stock  without 
anything  being  said  about  subscription,  he  is  liable  without 
subscription. 

§64.       Character  of  Stock  to  be  Issued. 

The  character  of  stock  to  be  issued  is  one  of  the  features  to 
be  discussed  and  determined  by  the  members  of  the  incorpora- 
tion meeting.  Corporate  stock  or  shares  are  either  common 


24  INDUSTRIAL     CORPORATIONS 

stock,  preferred  stock,  watered  stock,  deferred  stock,  over- 
issued stock,  or  special  stock. 

§  65.     Common  Stock. 

By  common  stock  is  simply  meant  the  stock  which  en- 
titles the  holder  to  a  pro  rata  division  of  the  profits  of  the 
business  or  assets  upon  dissolution,  if  there  be  any,  and  en- 
titles the  shareholder  to  no  preference  whatever  in  any  manner 
over  any  other  shareholder. 

§  66.     Preferred  Stock. 

By  preferred  stock  is  meant  that  the  preferred  stockholder 
has  a  preference  in  regard  to  the  dividends  out  of  the  net 
profits,  before  or  in  preference  to  the  common  stockholder.  It 
may  be  that  the  preferred  stockholder  is  to  receive  a  certain 
per  cent  upon  the  amount  of  his  shares.  This  will  have  to  be 
paid  to  him  regardless  of  whether  the  common  'stock  receives 
any  profit  or  not  out  of  the  business  of  the  concern,  or  there 
must  be  an  advantage  in  some  regard  in  favor  of  the  preferred 
stock  before  it  is  or  can  be  "preferred  stock,"  as  its  name 
implies. 

§  67.     Watered  Stock. 

By  watered  stock  is  meant  stock  which  is  issued  as  fully 
paid,  but  in  fact  the  full  amount  has  not  been  paid,  and  the 
difference  between  what  was  actually  paid  for  the  stock  and 
the  face  of  the  stock  is  the  amount  of  water  that  will  be  con- 
tained in  the  stock.  For  instance,  if  shares  are  issued  as  fully 
paid  of  the  par  value  of  $1.00  and  only  $0.50  per  share  is 
paid  by  the  shareholder,  then  the  stock  is  watered  to  the 
amount  of  the  other  fifty  cents,  and  this  would  be  true  whether 
the  stock  was  paid  for  in  property  or  labor  or  in  anything  that 
the  company  received  for  its  stock  at  an  over-valuation.  The 
issue  of  such  stock,  however,  appears  to  be  lawful,  if  there 
is  any  substance  in  it  whatever,  otherwise  it  would  be  spurious. 

§  68.     Deferred  Stock. 

By  deferred  stock  is  meant  the  payment  of  interest  upon 
which  is  expressly  postponed  until  some  other  stock  has  re- 


INITIAL     MEETING  25 

ceived  a  dividend,  or  until  some  contract  of  the  corporation 
has  been  paid  out  of  the  net  profits  of  the  company's  business. 

§  69.     Over-Issued  Stock. 

By  over-issued  stock  is  stock  issued  in  excess  of  the  full 
amount  of  capital  stock  authorized  by  the  corporation.  Such 
stock,  representing  nothing,  is  spurious  stock  and  void,  though 
it  may  have  been  issued  in  good  faith. 

§  70.     Guaranteed  Stock. 

There  is  another  class  of  stock  denominated  guaranteed 
stock.  This  is  a  common  form  of  transacting  business  at  the 
present  time,  and  is  usually  stock  issued  by  one  corporation, 
the  payment  of  which  at  a  certain  specified  time  in  the  future 
is  guaranteed  by  another  corporation,  which  other  corpora- 
tion receives  a  certain  per  cent  of  the  sale  of  the  stock  to 
remain  with  it  for  that  purpose.  It  will  be  before  the  incor- 
poration meeting  to  decide  which  character  of  stock  they  will 
issue,  whether  one  or  more  of  the  kinds  here  designated. 
Some  corporations  issue  common  stock  and  preferred  stock 
both ;  some  issue  common  stock,  and  with  the  sale  thereof 
give  a  bonus.  Stock  at  the  present  time  are  almost  all  of 
about  the  same  form.  They  are  of  steel  engraving,  with  ap- 
propriate words  engraved  and  printed  therein,  and  present  a 
very  beautiful  appearance.  However,  if  the  company  should 
desire  a  finer  stock,  which,  it  appears,  will  sell  better  and 
which  are  in  more  demand  by  the  public,  they  may  procure 
a  special,  lithographed  design. 

Sixth :  The  secretary's  entry  upon  this  topic  may  be  as 
follows :  "Upon  a  full  discussion  among  all  the  members,  it 
was  decided  to  use  the  'steel  engraved'  design  of  stock,  and 
to  issue  50,000  common  and  50,000  preferred  stock,  the  pre- 
ferred to  receive  five  per  cent  annual  dividend  out  of  any 
earnings  of  the  company ;"  or,  "it  was  decided  to  issue  100,000 
shares,  common  stock." 

§  71.     Term  of  the  Corporate  Existence. 

The  time  that  corporations  are  to  exist  vary   under  the 


26  INDUSTRIAL     CORPORATIONS 

different  laws  of  the  different  States  where  the  corporation 
is  to  be  created,  and  the  time  or  duration  of  the  corporation 
will  turn  upon  the  place  where  and  the  laws  under  which 
the  corporation  is  to  be  formed.  That  being  settled  as  a 
matter  of  law,  the  law  will  decide  it.  In  Arizona  a  corpora- 
tion may  be  formed  for  twenty-five  (25)  years,  and  extended 
by  a  majority  vote  of  the  stock  on  and  on  for  twenty-five  (25) 
years  at  a  time  perpetually. 

Seventh  minute  entry  may  be,  "It  was  decided  to  incor- 
porate under  the  laws  of  Arizona  for  a  term  of  twenty-five 
(25)  years." 

§  72.     A  Corporate  Seal. 

The  seal  of  a  corporation  is  its  proper  signature.  It  is 
the  means  by  which  it  authenticates  its  contracts.  It  is,  how- 
ever, at  the  present  time  necessary  to  use  a  seal  only  upon 
such  contracts  as  an  individual  would  use  a  seal,  such  as 
deeds,  mortgages,  and  instruments  to  be  recorded.  A  cor- 
poration may  contract,  however,  without  a  seal  by  means  of 
resolutions  or  through  its  agents.  The  seal,  as  the  enlight- 
enment of  the  human  race  passes  on,  becomes  less  in  im- 
portance, and  the  form  of  the  seal  varies  with  the  notion  of 
those  who  created  it.  It  may  bear  any  words  or  designation 
that  the  members  decide  upon,  and  when  it  is  necessary  to 
affix  the  seal  of  the  corporation  to  any  instrument,  it  is  usu- 
ally along  with  a  testimonium  clause,  which  may  be  in  the 
following  form : — 

§  73.    Testimonium  with  Seal  No.  3. 

In  witness  whereof,  the  said  Leap  to  Light  Mining  Com- 
pany has  caused  its  corporate  name  to  be  hereto  subscribed 
by  its  President,  and  its  duly  attested  corporate  seal  to  be 
hereto  affixed  by  its  Secretary.  All  in  the  city  of  Minneapolis, 
Minn.,  on  the  first  day  of  March,  A.  D.  1904. 

(Signed)      Leap  to  Light  Mining  Company, 

By  Wm.  A.  Brown.  President. 
Attest:  (Seal) 

Henry  Smith,  Secretary. 
A   deed   may   conclude   with    the   words :      "In   testimony 


INITIAL     MEETING  27 

whereof  the  common  seal  of  said  company  is  hereunto  affixed." 

Bason  vs.  King's  Mountain  Min.  Co.,  90  N.  C.  417. 
§  74.     An  Approved  Form  of  Attestation  of  a  Corporation, 
Form  No.  4,  Is: — 

In  witness  whereof,  the  said  party  of  the  first  part  has 
caused  its  corporate  seal  to  be  affixed  hereunto  by  its  Sec- 
retary, and  its  name  to  be  subscribed  hereto  by  its  President 
(or  other  corporate  officers,  as  the  case  may  be),  the  day 
and  year  aforesaid. 

(Seal.)  (Signatures  as  above.) 

Eighth  minute  entry  may  be:  "It  was  decided  to  have 
a  corporate  seal,  circular  in  form,  containing  the  word  'In- 
corporated,' the  date  of  the  year  of  incorporation,  with  the 
name  of  the  corporation  inscribed  within  its  outer  border." 

§  75.     Private  Property  Exempt  from  Corporate  Debts. 

Under  some  of  the  statutes  now  in  force  in  the  various 
States,  it  is  within  the  power  of  the  formers  of  a  corpora- 
tion to  exempt  their  private  property  by  the  terms  of  the 
charter  or  Articles  of  Incorporation  from  any  corporate  debt. 
This  is  a  very  beneficial  authority,  and  it  is  one  of  the  features 
of  the  Arizona  law  that  recommends  it  to  those  who  desire  to 
exempt  themselves  from  liability .  and  exempt  their  private 
property  from  liability  when  they  engage  in  the  formation  of 
a  corporation. 

With  a  clause  in  the  charter  stating  that  private  property 
is  exempt  from  corporate  debts,  a  stockholder  ventures  noth- 
ing more  than  just  what  he  pays  for  the  stock.  He  could  lose 
no  more  should  the  corporation  fail. 

Ninth  minute  entry:  "It  was  decided  that  private  prop- 
erty should  be  exempt  from  corporate  debts." 

§  76.     Place  Where  Business  Should  Be  Transacted. 

The  place  or  places  where  the  corporate  business  is  to  be 
transacted  is  usually  designated  in  the  charter  or  Articles  of 
Incorporation,  and  this  will  be  one  of  the  matters  for  dis- 
cussion by  the  meeting.  At  the  present  time  it  is  very  fash- 


28  INDUSTRIAL     CORPORATIONS 

ionable,  and  highly  proper  also,  that  parties  who  live  entirely 
without  a  Territory,  State,  or  country,  to  form  corporations  in 
such  foreign  State  or  country,  and,  in  that  case,  they  usually 
desire  to  transact  their  business  at  their  own  home  or  at  a 
city  designated  in  their  own  State,  to  the  entire  exclusion  of 
the  transaction  of  any  business  in  the  State  or  country  where 
the  corporation  is  formed,  and  in  such  case,  the  question 
arises  as  to  their  principal  place  or  places  of  business. 

If  it  is  a  "condition  precedent,"  or  in  other  words,  it  is  a 
statutory  requirement  that  the  company  shall  designate  its 
principal  place  or  places  of  business,  then  such  matter  must 
be  stated  in  the  charter  or  Articles  of  Incorporation.  If,  how- 
ever, it  is  not  a  condition  precedent,  it  then  becomes  a  mere 
matter  of  business  for  the  corporation,  then  it  will  fall  to 
a  place  in  the  by-laws  where  the  place  of  business  may  be 
stated.  In  the  first  case,  if  it  is  a  condition  precedent,  then 
the  company  will  be  compelled  to  designate  their  principal 
place  of  business  in  the  State,  as  well  as  their  principal  place 
of  transacting  without  the  State  or  Territory,  in  the  charter 
or  Articles  of  Incorporation,  otherwise  they  need  not  designate 
their  place  of  business  or  discuss  it  in  the  first  meeting,  but 
can  leave  it  to  be  declared  by  the  stockholders  or  board  of 
directors,  or  whoever  prepare  the  by-laws. 

Tenth  minute  entry:  "The  places  at  which  the  corpora- 
tion was  authorized  to  transact  business  was  at  Phoenix, 
Ariz.,  and  at  Minneapolis,  Minn.,  and  at  such  other  place  or 
places  as  the  board  of  directors  might  from  time  to  time,  by 
a  resolution,  designate." 

§  77.     Amount  of  Indebtedness  Corporation  Shall  Incur. 

The  indebtedness  of  a  corporation  also  is  like  its  place 
of  business.  If  the  company  is  required  by  the  laws  of  the 
State  or  country  where  the  corporation  is  formed  to  state  its 
indebtedness  or  the  amount  of  its  indebtedness  as  one  of  the 
conditions  precedent  to  its  formation,  then  it  will  be  com- 
pelled to  state  that  indebtedness  in  the  charter  or  Articles  of 
Incorporation ;  and  if  this  question  arises  in  that  manner,  it 


INITIAL     MEETING  29 

will  then  be  a  question  for  the  preliminary  formation  meeting 
how  much  indebtedness  their  company  will  be  subjected  to, 
and,  unless  the  statute  so  provides,  there  is  no  set  amount  of 
indebtedness  to  be  decided  upon,  but  that  will  be  left  to  the 
discretion  of  the  incorporation,  wherever  they  put  it;  beyond 
that  they  will  not  be  entitled  to  go,  and  if  they  desire  to  incur 
further  indebtedness  than  that  set  forth  in  their  charter  or 
Articles  of  Incorporation,  they  will  have  to  reach  the  point 
through  legislative  enactment  by  an  amendment  to  the  charter. 
Eleventh  minute  entry:  "The  amount  of  indebtedness  the 
company  shall  incur  at  any  one  time  shall  not  exceed  one-half 
of  its  capital  stock." 

§  78.     Under  What  Law  the  Company  Shall  Be  Formed. 

This  subdivision  is  a  very  important  feature  for  considera- 
tion. It  goes  toward  the  financial  affairs  of  the  corporation, 
the  costs  and  the  expenditures  attending  the  incorporation, 
the  advantages  to  be  obtained  under  the  various  laws  and  en- 
actments of  the  various  States.  It  will  be  worthy  of  the 
careful  consideration  of  the  preliminary  meeting  to  know 
where  they  can  receive  the  greatest  advantages  at  the  least 
possible  expense,  with  the  most  proficient  skill  in  the  prepa- 
ration of  the  charter  or  Articles  of  Incorporation. 

In  order  to  obtain  this  information,  it  will  be  necessary 
for  them  possibly  to  enter  upon  a  wide  field  of  investigation, 
resort  being  had  to  law  books,  lawyers,  and  experience  in 
that  line  from  whatever  source  it  may  come. 

Each  State  in  the  Union  has  general  laws  upon  the  in- 
corporation of  individuals  into  corporations.  They  each  have 
their  various  fees  in  the  first  instance,  their  taxes,  known  as 
organization  taxes,  franchise  taxes,  inheritance  taxes,  and 
other  things  that  each  of  them  requires  of  the  incorporators, 
afterward  such  as  annual  reports,  of  where  stockholders' 
meetings  are  to  be  held,  whether  there  must  be  citizen  direc- 
tors, and  the  like,  all  more  or  less  impediments  to  be  care- 
fully considered. 


30  INDUSTRIAL     CORPORATIONS 

It  would  be  an  endless  and  unnecessary  inquisition  in  this 
work  to  set  out  the  particular  requirements  of  each  State 
in  the  Union,  there  being  forty-five  States  and  five  Territories, 
whose  laws  would  have  to  be  compared  and  explained,  and 
would  further  make  a  volume  far  larger  than  this  work  is 
intended  to  be  to  state  or  set  forth  the  comparative  advan- 
tages and  disadvantages  as  found  in  the  various  general  laws 
of  each  and  every  State  and  Territory  of  the  Union. 

§  78a.     Comparison  of  the  Disadvantages  of  the  Laws  of  the 
Leading  Corporation  States. 

As  much  as  can  be  done  or  as  much  space  as  the  incor- 
porators  would  canvass  possibly  would  be  the  laws  of  the 
leading  incorporation  States  and  Territories  in  the  Union, 
which  in  all  comprise  less  than  a  dozen  ;  anything  more  would 
result  in  confusion  and  serve  no  useful  purpose. 

All  the  States  that  still  retain  the  chartering  of  companies 
through  their  Legislature  only  will  be  eliminated  from  our 
consideration. 

It  is  the  right  of  every  citizen  to  incorporate  his  company 
where  it  is  most  advantageous  to  him  and  his  co-in corporators. 

As  a  citizen  of  the  United  States,  he  has  a  right  to  re- 
sort to  the  laws  of  every  State  and  Territory  of  the  Union  in 
search  of  such  beneficial  features  as  appear  to  his  judgment 
to  be  suited  to  his  enterprise,  to  his  condition,  and  to  that 
of  his  fellow  incorporators. 

As  a  citizen  of  a  great  country,  he  has  the  right  to  do 
business  in  the  whole  United  States,  the  eighty  million  peo- 
ple thereof  being  his  market,  having  no  greater  right  to  sell 
to  his  nearest  neighbor  than  he  has  to  the  most  remote  citizen 
from  his  home,  and  this  right  exists  regardless  of  imaginary 
boundary  lines  of  commonwealths. 

A  sharp  competition  has  arisen,  and  is  now  going  on, 
among  the  leading  incorporating  States,  vying  with  each 
other  for  the  corporate  business  in  order  to  secure  the  charges 
and  taxes  accruing  to  the  State  for  incorporation  of  com- 
panies, and  thus  enrich  their  treasuries  from  incorporators 


INITIAL     MEETING  31 

without  the  State  in  order  to  militate  to  the  benefit  of  the 
citizen  taxpayer  within  the  State. 

The  truth  is,  the  laws  of  the  various  States  are  being 
changed  so  rapidly  that  the  result  of  an  investigation  and 
classification  at  this  time  might  not  serve  as  a  very  reliable 
source  of  information  after  the  Legislatures  meet  in  the  vari- 
ous States  the  next  session. 

With  this  view  before  us,  we  will  cut  our  investigation  or 
analysis  down  to  the  consideration  of  the  disadvantages  only 
found  in  the  laws  of  the  States  from  the  standpoint  of  an 
incorporator  who  seeks  the  greatest  liberality  at  a  minimum 
cost  and  liability. 

Having  examined  all  of  the  States  that  offer  incorporation 
under  general  incorporation  laws  or  enabling  acts,  we  select 
as  the  leaders  those  States  and  Territories  that  seem  to  be 
doing  the  volume  of.  business  at  the  present  time,  to  wit: 
Arizona  Territory,  District  of  Columbia,  Maine,  Massa- 
chusetts, Connecticut,  New  York,  New  Jersey,  Nevada,  Ore- 
gon, West  Virginia,  South  Dakota. 

These  localities  will  be  compared  under  two  heads,  lim- 
iting the  inquiry  to  the  matter  expressly  found  upon  the  face 
of  the  incorporation  acts,  omiting  the  liabilities  that  may  re- 
sult from  the  extraordinary  remedies  of  attachment,  etc., 
and  other  matters  of  practice  before  the  Courts. 

1.  The  disadvantages. 

2.  The  liabilities,  costs,  etc.,  for  a  million-dollar  corpora- 
tion. 

§  79.     Arizona  Territory. 

The  only  objection  raised  by  any  lawyer  that  we  know  of 
is  that  Arizona,  being  a  Territory,  suits  could  not  be  brought 
in  the  federal  courts  in  the  first  ins'tance,  and  the  reason 
given  in  each  instance  why  it  was  desired  to  sue  in  the 
federal  courts  was  and  is  that  the  federal  courts  are  more 
favorable  to  corporations  than  State  courts.  In  other  words, 
corporations  could  not  get  justice  in  the  State  courts. 
We  take  issue  with  this  contention  as  not  well  taken. 


32  INDUSTRIAL     CORPORATIONS 

First,  Because  the  company  is  drawn  away  from  its  home, 
and  the  expense  is  greater  in  attending  the  suit  in  the  federal 
court. 

Second,  The  company  is  called  away  from  its  home  and 
its  influence  with  home  juries  and  its  own  friends  at  court, 
and  its  case  is  weakened. 

Third,  It  being  true  that  you  can  not  sue,  it  is  also  true 
that  you  can  not  be  sued  and  dragged  away  from  your  home 
and  friends  by  those  who  wish  to  get  such  an  advantage- 
over  you  in  a  suit,  but  they  must  sue  you  at  home,  where 
your  influence  and  standing  in  the  community  is  the  greatest. 

Second  issue,  of  the  favor  of  federal  courts  toward  cor- 
poration, we  deny  that  in  substance  and  in  fact. 

First,  Because  there  is  now  no  prejudice  among  the  sev- 
eral States  toward  corporations,  for  the  reason  that  corpora- 
tions are  so  well  understood  that  everybody  is  now  incor- 
porating, as  the  records  of  the  States  and  Territories  show 
that  more  than  30,000  companies  are  being  formed  each  year, 
and  they  represent  on  an  average  of  more  than  five  people 
each,  aggregating  in  twenty  years  more  than  three  million 
active  business  men  engaged  in  business  under  corporations. 

Second,  Because  the  States  are  sharply  competing  for  the 
corporation  business. 

Third,  Because  the  judges  of  the  various  States  are  not 
unmindful  that  they  must  give  the  corporation  a  fair  deal, 
or  they  would  drive  not  only  the  State's  corporation  busi- 
ness away,  but  drive  out  of  their  State  the  active  tax-paying 
business  men  as  well. 

Fourth,  Because  it  is  assuming  that  the  State  judges  are 
not  fair  and  impartial  jurists,  a  fact  that  has  never  been 
proved,  nor  can  it  ever  be  proved. 

Fifth,  Because  all  the  federal  judges  have  been  selected 
from  among  lawyers  and  judges  of  the  States,  and  it  is  diffi- 
cult to  understand  how  a  man  could  be  prejudiced  against 
corporations  as  a  judge  of  a  State,  and  reverse  himself  in- 
stantly upon  being  appointed  a  federal  judge. 


INITIAL     MEETING  33 

It  is  also  suggested  that  Arizona  being  at  such  a  great 
distance  from  the  East,  it  is  objectionable  on  that  ground. 
Just  how  such  ground  is  tenable  is  not  perceptible,  as  it  is 
no  farther  from  the  East  to  the  West  than  from  the  West 
to  the  East,  and,  inasmuch  as  the  entire  business  is  done 
through  the  mail,  there  are  no  greater  costs  attached  than 
though  Arizona  was  an  adjoining  State.  •  All  the  business  of 
the  corporation  is  done  at  the  home  of  the  incorporators  or 
where  they  designate. 

LIABILITIES,    COSTS,    ETC. 

The  approximate  costs  of  incorporating  a  company  in 
Arizona  Territory  for  a  million  dollars  or  any  amount  is 
about  $50.  This  sum  pays  all  the  fees  of  the  Territory,  as 
well  as  solicitors'  fees. 

The  liabilities  of  stockholders  are  left  to  the  incorporators 
if  they  exempt  their  private  property  from  corporate  debts; 
by  the  Articles  of  Incorporation  their  private  property  can 
not  be  reached  for  the  debts  of  the  corporation. 

Session  Acts  1903,  p.  140,  Sub.  7. 

It  is  also  required  to  maintain  a  domicilary  agent  for 
service  of  process. 

Revise  Stat.  Ariz.  783. 

There  are  no  restrictions  upon  the  action  of  incorpora- 
tors under  the  laws  of  Arizona  Territory;  corporations  are 
left  as  free  to  act,  contract,  and  operate,  own  and  control 
property  as  a  natural  person ;  that  is  one  of  the  powers  ex- 
pressly granted  corporations  by  statute. 

Revised  Stat.  Ariz.,  par.  765,  Sub.  6. 

The   Supreme   Court  of  the   United   States,  the  court  of 
last  resort  for  Arizona  Territory,  holds   that   a  corporation 
can  do  any  act  not  inhibited  by  statute. 
Handley  vs.  Stutz,  139  U.  S.  417. 

The  corporation  being  operated  by  natural  persons,  for 
natural  persons,  where  is  there  any  reason  why  their  limit  in 

4 


34  INDUSTRIAL     CORPORATIONS 

business  should  be  any  less  in   breadth   than   a  natural  per- 
son, within  the  powers  secured  in  the  Articles  of  Incorporation. 

§  80.     District  of  Columbia. 

The  disadvantages   in   using  the  laws  of  the  District  of 
Columbia  are  as  follows : — 

1.  No  less  than  three  can  incorporate. 

D.  C.  Code  60S. 

2.  Can  not  deal  in  stock  of  other  corporations 

D.  C.  Code  620. 

3.  Only  one   business   can   be   inserted   in   the  Articles  of 
Incorporation. 

D.  C.  Code  612. 

4.  Ten  per  cent  of  capital  must  be  paid  in  before  company 
can   begin  business. 

D.  C.  Code  613. 

5.  Forfeiture  of  stock  for  non-payment  of  assessments. 

D.  C.  Code  607. 

6.  There   can   be   no   less   than   three   directors   nor   more 
than  fifteen,  a  majority  of  which  must  reside  in  the  District 
of  Columbia. 

D.  C.  Code  608. 

7.  Must  make  affidavit  within  thirty  days  of  the  amount 
of  capital  stock  fixed  and  paid  in. 

D.  C.  Code  616. 

8.  List  of  stockholders  within   six  months  must  be  kept 
on  file  in  the  District  of  Columbia. 

D.  C.  Code  627-628. 

9.  Annual   report   must  be   made  and  published,   showing 
the  amount  of  capital,  amount  paid  in,  and  its  debts. 

D.  C.  Code  617. 

10.  Annual  schedule  must  be  filed  showing  personal  prop- 
erty in  District. 

32  C.  C.  D.  617. 


INITIAL     MEETING  35 

LIABILITIES,    COSTS,    ETC. 

Recorder's  fees,  fifty  cents  for  first  two  hundred  words  of 
the  Articles  of  Incorporation,  fifteen  cents  per  hundred  there- 
after ;  twenty-five  cents  for  each  acknowledgement  over  one ; 
twenty-five  cents  for  certificate  and  seal.  Since  the  above 
fee  bill  was  enacted,  Congress  has  passed  an  act  raising  the 
fees  to  forty  cents  per  thousand,  so  that  a  million-dollar 
corporation  would  cost  not  less  than  $400.  How  many  more 
embargoes  laid  by  the  act  is  unknown  to  us,  as  the  act  has 
not  yet  been  published. 

This  large  fee,  coupled  with  the  other  restrictions,  put 
the  District  of  Columbia  out  of  consideration  as  a  place  to 
incorporate. 

§  81.     Maine. 

The  disadvantages  under  Maine  laws  are  as  follows: — 

1.  Not  less  than  three  can  incorporate. 

R.  S.  Maine  1894,  chap.  47,  sec.  6. 

2.  Has  a  complex  certificate  of  organization,  which  must 
be  approved  by  the  attorney  general. 

Sees.  3,  4,  6,  7,  8,  9,  10. 

3.  First  organization  and  directors'  meetings  are  required 
to  be  held  in  the  State. 

Laws  of  1903,  chap.   182;  Freeman  vs.  Company,  38 
Me.  343. 

4.  Stockholders  must  hold  meetings  within  the  State. 
Sees.  11-19. 

5.  Must  keep  books  in  State  open  for  inspection. 
Sees.  19-21 ;  sees.  3-20. 

6.  Must   make   annual   sworn   statement   and   file   it   with 
secretary,  showing  names  and  residences  of  president,  treas- 
urer, directors,  and  clerk,  location  of  its  principal  office  in 
State,  and  amount  authorized  capital  stock. 

Sec.  26. 


36  INDUSTRIAL     CORPORATIONS 

7.  Forfeiture  of  articles  for  failure  to  pay  the  annual  fran- 
chise within  one  year  from  due. 

Chap.  8,  sees.  21,  22;  chaps.  1-29. 

8.  Existence  can  not  be  extended. 

LIABILITIES,    COSTS,    ETC. 

Organization  tax,  $10,  where  capital  stock  is  $10,000  or 
less ;  $10,000  to  $500,000,  $50  tax ;  and  $10  additional  for  each 
$1,000  capital  stock  in  excess  of  $500,000.  It  would,  there- 
fore, cost  $550  for  a  million-dollar  corporation.  Aside  from 
the  attorney  general's  fee  of  $5.00,  recording  certificate  of 
organization  and  certified  copy,  $5.00;  secretary's  fee,  $3.00; 
making  a  total  to  start  of  $570. 

This  does  not  include  the  annual  franchise  tax  of  $50 
for  a  million-dollar  concern. 

The  excessive  fees  and  taxes,  coupled  with  the  forfeiture 
for  non-payment,  with  no  rights  of  stockholders  to  meet  out- 
side of  the  State,  eliminates  Maine  from  our  consideration 
as  an  incorporation  State. 

§  82.     Massachusetts. 

The  disadvantages  here  are  as  follows : — 

1.  Real  estate  can  not  be  incorporated. 

Laws  1903-437. 

2.  No  less  than  three  can  incorporate. 

Sec.  7 ;  Walwirth  vs.  Brackett,  98,  Mass.  98. 

3.  Complex  agreement  of  association.    -Par  of  stock  can 
not  be  less  than  $5.00;  must  be  submitted  to  a  corporation 
commissioner  who  must  approve  of  the  agreement,  and  he  can 
amend,   or   the   commissioners   may   inquire   into   the   organi- 
zation. 

Sees.  8,  9,  10,  11,  12;  Bird  vs.  Daggett,  97  Mass.  494. 

4.  Full   exposure  of  all  the   transaction   of  the   company 
must  be  spread  out  on  the  record  in  the  articles  of  organi- 
zation 

Sec.  11. 


INITIAL     MEETING  37 

5.  Organization  meeting  must  be  within  the  State. 
Sees.  9,  10,  20. 

6.  Stockholders'    and    directors'    meeting    must    be    held 
within  the  State. 

Laws  1904,  chap.  207,  sees.  20-25. 

7.  The  president  must  be  elected  from  the  board  of  di- 
rectors. 

Sec.  18. 

8.  Stockholders  are  personally  liable  for  loans  to  the  cor- 
poration; also  for  contract  during  certain  periods  of  time. 

Sees.  34,  35;  Cole  vs.  Cassidy,  138  Mass.  437. 

9.  Two  annual  reports   must   be  made,  one  to  the  com- 
missioner, making  a  complete  breast  of  the  entire  workings 
of  the  corporation,  which  must  be  filed,  even  to  the  pledging 
of  the  corporate  stock. 

Sees.  45-50. 

10.  Charter  may  be  forfeited  for  usurpation  of  franchise 
or  privileges  or  for  failure  to  pay  annual  franchise  tax. 

Sees.  49,  78;  chap.  186,  sec.  1724  P.  S. 

LIABILITIES,    COSTS,    ETC. 

1.  Organization  tax,  twenty-five  cents  per  $1,000  capital 
stock,  and  in  no  case  less  than  $10. 

2.  Certified  copy  of  articles,  $5.00. 

3.  Franchise  tax  of  not  less  than  one  tenth  of  one  per 
cent  of  the  market  value  of  its  capital  stock.  '  However,  this 
tax  may  be  much  more;  no  limit. 

Sees.  74,  76-87;  Laws  1904,  chaps.  225-445. 

The  cost  of  a  million-dollar  corporation  in  Massachusetts 
would  be  not  less  than  $250  for  organization,  with  not  less 
than  a  $1,000  per  annum  franchise  tax. 

The  fees  taken  in  consideration  with  the  complexity  of 
the  corporate  minutia,  together  with  the  publicity  that  must 
attend  the  annual  reports  eliminate  Massachusetts  from  con- 
sideration as  a  corporation  State.  The  requirements  appear 
to  be  so  strict  that  the. stockholders  would  have  to  keep  coun- 


INDUSTRIAL     CORPORATIONS 

sel  for  no  other  purpose  than  to  keep  them  out  of  the  meshes 
of  the  law. 

§  83.     Connecticut. 

The  disadvantages  of  incorporating-  in  Connecticut  are  as 
follows : — 

1.  All  meetings  must  be  held  within  the  State. 

Conn.  Cor.  Law,  sec.  22. 

2.  Must  pay  $1,000  in  before  commencing  business. 
Conn.,  Cor.  Law,  sec.  63. 

3.  No  less  than  three  directors. 

Conn.  Cor.  Law,  sec.  10. 

4.  No  less  than  three  can  incorporate. 

Laws  1903,  chap.   194,  sec.  62. 

5.  Shares  can  not  be  less  than  $25  each. 

Sec.  63. 

6.  Certificate  of  incorporation   must  be  approved   by   the 
secretary  of  state. 

Sees.  60-66. 

7.  Stockholders'  meetings  must  be  held  within  the  State. 
McCall  vs.  Com.  6,  Com.  428,  sees.  3,  22. 

8.  Annual  report  must  be  filed  with  secretary. 

Sec.  37. 

LIABILITIES,    COSTS,    ETC. 

Minimum  fee  is  $25,  with  fifty  cents  per  $1,000  up  to 
$5,000,000,  and  fifteen  cents  per  $1,000  over  that  amount  of 
capital  stock,  which  would  amount  to  $500  for  a  million-dollar 
company,  together  with  $1.00  to  secretary  for  each  of  the 
papers,  certificate  and  organization  for  recording,  and  $1.00 
for  recording  in  the  local  office. 
Sec.  61. 

The  large  fee,  in  consideration  with  the  other  serious  ob- 
jections  to   the   operation   of   a   corporation    in    Connecticut, 


INITIAL     MKKTING  39 

eliminates  it  from  the  consideration  of  an  incorporating  State. 
§  84.     New  York. 

The  disadvantages  of  incorporating  in  New  York  are  as 
follows : — 

1.  Doubt  about  holding  stockholders'  meetings  out  of  the 
State. 

Ormsby  vs.  Cooper  Co.,  56  N.  Y.  623. 

2.  Five  hundred  dollars  must  be  paid  in  before  any  debt 
can  be  incurred. 

B.  C.  L.  1890,  sees.  2,  3,  5. 

3.  One-half  the  capital  must  be  paid  in  within  the  first 
year. 

N.  Y.  S.  C.  L.  1890,  sec.  42. 

4.  Not  less  than  three  can  incorporate. 

B.  C.  L.,  sec.  2. 

5.  Two-thirds  of  the  incorporators  must  be  citizens  of  tin- 
United  States. 

G.  L.  C.,  sec.  4. 

6.  At  least  one   incorporator  must  reside   in   New  York, 
and  at  least  one  director  must  reside  in  New  York. 

N.  Y.  B.  C.  L.,  sec.  2. 

7.  Must  keep  at  office  in  the  State,  book  of  accounts  open 
for  inspection  of  stockholders  and  creditors. 

S.  C.  L.,  sec.  29. 

Matter  vs.  Stein  way,  159  N.  Y.  250,  53  North  Eastern 

1103. 

8.  Annual  report  must  be  filed  with  secretary  of  all  the 
business,  signed  and  sworn   to,  and  on   failure  a  penalty  of 
$50  per  day  is  incurred,  so  long  as  report  is  delayed. 

S.  L.  C.,  sec.  30;  Tax  Law,  sec.  189. 

9.  Certification  of  incorporation  may  be  forfeited. 

(a)    For  failure  to  organize  and  begin  business  within  two 
years. 


40  INDUSTRIAL     CORPORATIONS 

(b)  For  failure  to  pay  in  one-half  of  capital  stock  in  one 
year. 

(c)  For  failure  to  pay  the  annual   tax  within   one  year 
after  statement  rendered. 

G.  C.  L.,  sec.  31;  C.  C.  L.,  sec.  5;  Tax  Law  200;  C.  C. 
P.  1797-1803;  Day  vs.  Company,  107  N.  Y.  29;  13  N.  E. 
765;  People  vs.  Company,  131  N.  Y.  140;  29  N.  E.  947. 

LIABILITIES,     COSTS,    ETC. 

1.  Stockholders  are  liable  personally  for  certain  debts  of 
the  corporation. 

S.  C.  L.,  sees.  54,  55 ;  B.  C.  L.,  sec.  6. 

2.  Fees :     Secretary,  $10  for  filing  certificate ;  fifteen  cents 
per  folio  for  recording  certificate ;  to  county  clerk  filing,  six 
cents;  and  ten  cents  per  folio  for  recording,  with  one  dollar 
for  the  great  seal. 

3.  Organization  tax,  fifty  cents  per  one  thousand  of  capital 
stock,  as  shown  by  the  certificate  of  incorporation. 

Tax  Law,  sec.  180;  Laws  1901,  448. 

4.  Franchise  tax  if  one  fourth  of  a  mill  on  the  dollar  on 
the  dividends  of  six  per  cent  or  over ;  declared  on  less  than 
six  per  cent,  one  and  one-half  mills ;  if  no  dividend  is  declared, 
then  one  and  one-half  mills  on  the  appraised  value  in  state 
for  industrial  corporations. 

Tax  Laws,  sees.  182,  183,  189,  190. 

5.  Has  also  a  direct  and  collateral  inheritance  tax  on  stock. 

55  AM.  State,  Rep.  632-640 ;  34  Lawyer  Rep.  Annotated 
232-238;  In  Re  Bronson  Est.,  N.  Y.  1-27,  44  N.  E. 
707-715. 

It  would  cost  about  $525  to  incorporate  in  New  York, 
with  yearly  tax  afterward  of  possibly  about  $1,500  per  annum. 

Considering  the  large  fees  and  taxes,  coupled  with  the 
stringent  requirements  of  law,  none  but  a  very  wealthy  class 
of  corporations  could  exist  in  New  York,  hence  it  must  be 
eliminated  as  an  incorporating  State. 


INITIAL     MEETING  41 

§  85.     New  Jersey. 

1.  No  less  than  three  can  incorporate. 

L.  1896,  chap.  185,  sec.  6. 

2.  Requires    subscription    of   $1,000   before    incorporation 
will  be  allowed  to  begin  business. 

Sees.  25,  26. 

3.  One  thousand  dollars  in  value  must  be  paid  in  before 
debts  can  be  incurred. 

Sees.  25,  26. 

4.  Organization  meeting  must  be  held  within  State. 

Sec.  115 

5.  Stockholders'  meetings  must  be  held  within  the  State. 
Act.  sec.  44. 

6.  Minimum  number  of  directors  is  three,  one  of  whom 
must  reside  in  State. 

Sees.  12,  36,  39. 

7.  Directors  liable  for  loans  to  stockholders. 

Sees.  55-92. 

8.  Transfer   book   and   stock   book   must   be   kept   in    the 
State. 

Sec.  33. 

9.  Must  make  annual   report  to   secretary,   disclosing  its 
business. 

Laws  1898,  p.  140,  sec.  43. 

10.  Charter  forfeited  for  failure  to  comply  with  order  of 
court  requiring  production  of  books  or  its  failure  to  pay  its 
annual  franchise  tax. 

Law  1896,  sec.  44,  p.  319;  Laws  1904,  chap.  219. 

LIABILITIES,     COSTS,     ETC. 

1.  Fees  to  secretary,  $1.00,  and  ten  cents  per  folio  for 
recording  charter;  to  county  clerk  for  recording,  ten  cents 
per  folio. 


42  INDUSTRIAL     CORPORATIONS 

2.  Organization   tax :     Minimum,  $25,  with  twenty   cents 
per  $1,000  capital  stock  authorized. 

Law  1904,  148. 

3.  Annual  franchise  tax  of  about  $1,000  per  annum. 

Laws  1901,  31. 

A  million-dollar  corporation  would  cost  about  $225  to 
begin  with,  and  about  $1,000  annual  franchise  tax. 

Considering  the  large  fees  and  taxes,  it  is  apparent  that 
New  Jersey  must  be  eliminated  as  a  corporation  State. 

Evidently  her  laws  were  made  with  a  view  of  excluding 
the  man  of  ordinary  means. 

§  86.     Nevada. 

Nevada  Corporate  Act  of  1905  is  a  confusion  of  incon- 
sistent provisions ;  it  does  not  follow  the  common  law  nor 
the  law  of  any  State ;  it  certainly  was  not  prepared  by  a 
lawyer  or  any  one  learned  in  corporate  law. 

1.  No  less  than  three  can  form  a  corporation. 

2.  No  more  than  one  business  can  be  incorporated.     "Any 
lawful  business,"  not  businesses  for  "any  object  or  purpose" 
not  objects  or  purposes. 

Sec.  1,  Act  March  16,  1905. 

3.  Section   2  proposes   to   spawn   insurance   companies  to 
infest  other  states,  that   Nevada  will  not  tolerate,  but  they 
must  ''operate  wholly  without  this  State."     Intolerable  cor- 
porations are  no  more  appreciated  outside  than  in  Nevada. 

4.  Sec.  3  proposes  to  allow  corporations  to  form  for  "any 
one  or  more  of  the  purposes  specified  in  this  act."     As  Sec. 
2  is  the  only«section  specifying  any  purposes,  and  that  specifies 
life,  fire,  marine,  or  accident  insurance  companies,  it  is  pre- 
sumed this  section  refers  to  corporations  that  are  to  operate 
wholly  outside,  without  the  right  to  operate  within  the  State. 

5.  Sec.  4,  Sub.  1.     The  corporate  name  must  be  such  as 
to  distinguish  it  from  all  the  corporation  as  "condition  prece- 
dent" in   the  first  instance.     If  its  name  should  fail  to  dis- 
tinguish it  from  some  other,  due  incorporation  is  not  reached. 


INITIAL     MEETING  43 

6.  Sec.  4,  Sub.  2.    The  articles  must  specify  the  street  and 
number  of  the  corporate  place  of  business  as  one  of  its  con- 
ditions precedent,  and  should  the  company  desire  to  move  its 
office,  it  must  amend  its  Articles  of  Incorporation  to  do  it, 
and  pay  the  secretaries'  fees  again  for  a  license  to  be  a  cor- 
poration in  another  place,  even  the  next  door  to  its  original 
place  of  business,  or  it  must  proceed  under  Sec.  69,  and  be 
subject  to  newspaper  graft  and  other  fees. 

7.  Sec.   4,   Sub.   3   requires    "the   nature   of  the   business 
or  objects  or  purposes  to  be  transacted"  to  be  "set  forth ;" 
if  followed  to  its  result,  would  reach  a  voluminous  statement ; 
being  a  condition  precedent,  it  must  be  satisfied  and  how? 
The  nature  of  the  business  must  be  stated,  but  whether  gen- 
eral or  special,  or  both,  is  not  pointed  out. 

8.  Sec.  4,  Sub.  4  requires  no  less  than  $1,000  before  busi- 
ness can  be  commenced ;  subscription  to  stock  to  be  put  into 
the  articles  and  "terms  on  which  the  stock  are  created,"  and 
various  other  requirements  or  conditions  precedent,  must  be 
carried  out  to  be  legal,  would  of  itself  make  a  ponderous 
document. 

9.  Sec.  4,  Sub.  5  is  an  onerous  provision. 

10.  Sec.  4,  Sub.  6  is  a  wise  provision. 

11.  Sec.  4,  Sub.  7  is  a  useless  requirement. 

12.  Sec.  4,  Sub.  8  lays  an  embargo  on  the  right  to  raise 
capital  by  assessment,  if  desired. 

13.  Sub.  4,  Sec.  9  refers  to  powers,  but  whether  such  refer- 
ence is  to  the  powers  as  measured  by  the  charter  or  to  the 
powers  granted  by  the  statute  by  Sec.  7,  is  not  distinguished 
or  defined;  it  is  left  to  conjecture.     Inasmuch  as  the  corpora- 
tion "may"  or  "may  not"  do  the  things  pointed  out,  it  is  op- 
tional with   the  company,  and  not   condition   precedent,  and 
may  be  disregarded  entirely.     Certainly  it  can  not  overbear 
statutory  requirements. 

14.  Sec.  5  places  incorporations  within  the  grasp  of  the 
secretary  of  state;  whether  or  not  the  incorporators  would 
have  "the  required  statement  of  facts"  could  depend  on  the 


44  INDUSTRIAL     CORPORATIONS 

scruple  of  the  secretary  of  state.  He  could  reject  proper 
articles  and  pass  improper.  He  could  favor  this  lawyer  and 
refuse  another.  He  could  reward  his  friends  and  punish  his 
enemies.  He  could  exact  tribute  of  one  and  all.  He  is  the 
czar  that  wills  corporate  life  in  Nevada.  Nothing  short  of  the 
extraordinary  writ  of  mandamus  could  reach  him,  and  having 
a  discretion  as  to  whether  the  "required  statement  of  facts" 
were  incorporated  or  not,  places  him  beyond  the  reach  of 
mandamus. 

15.  Sec.  7.     Powers  granted  by  this  section  are  not  like 
the  powers  at  common  law ;  they  contain  no  express  power 
to   make   contracts   generally   respecting   all   property, — real, 
personal,  and  mixed, —  but  appear  to  limit  the  transactions 
of  the  company  to  specific  designations  set  forth  respecting 
real  and  personal  property,  only  without  extending  even  such 
limited  rights  to  mixed  property.     There  is  no  provision  em- 
powering the  stockholders  to  exempt  themselves  from  corpo- 
rate debts. 

16.  Sec.  8  concerns  the  issue  of  money,  which  is  inhibited 
to  corporation  other  than  national  banks  by  the  statutes  of 
the  United  States. 

17.  Sec.  9  is  a  limitation  on  the  corporation  to  the  par- 
ticular powers  granted  by  the  act  and  such  "incidental  powers 
as  shall  be  necessary  to  the  exercise  of  the  powers  given." 
These  incidental  powers  are  such  as  every  corporation  has 
already  by  reason  of  its  existence,  as,  of  course,  to  carry  oh 
its  business,  and  is  a  mere  superfluity  in  a  statute. 

17.  Sec.  10  is  a  singular  statement,  a  seeming  limitation 
inconsistent  with  Sec.  4,  Sub.  4,  descending  to  mere  by-law 
matter  of  the  company. 

18.  Sec.  11  is  more  mere  by-law  matter. 

19.  Sec.  12  is  by-law  matter. 

The  entire  act  has  114  sections,  and  has  the  trick  of 
"cumulative  voting"  (see  Sec.  20),  and  a  new  way  to  incorpo- 
rate (Sec.  49),  and  abounds  in  other  anomalous  uncertain  pro- 
visions upon  the  power  of  a  court  of  equity.  Enumerations 


INITIAL     MEETING  45 

of  mere  by-law  matter  and  many  other  inconsistent  irrecon- 
cilable statements  impossible  to  be  analyzed  or  attempted 
to  be  reconciled  in  a  small  work  like  this. 

LIABILITIES,    COSTS,    ETC. 

For  a  million-dollar  corporation  it  would  cost  $100;  to 
secretary's  agent,  $1.00,  making  $101 ;  this  does  not  enumerate 
the  fees  of  the  county  clerk,  which  will  amount  to  $10  or  $15 
more.  It  is  safe  to  say  no  less  than  $125  for  fees  alone  would 
satisfy  the  laws  of  Nevada,  besides  the  solicitor's  fees,  agent's 
fees,  etc. 

These  fees,  together  with  the  provisions  of  the  statute, 
eliminate  Nevada  entirely  out  of  consideration  as  an  incor- 
porating State. 

§  87.     Oregon. 

The  disadvantages  of  incorporation  in  Oregon  are  as  fol- 
lows : — 

1.  Not  less  than  three  can  incorporate. 

Annotated  Code  Statutes  1902,  sec.  5052. 

2.  One  half  of  the  capital  stock  must  be  subscribed  before 
any  business  can  be  transacted. 

Sec.  5057. 

3.  Organization  meeting  must  be  held  within  the  State. 
Sec.  5058. 

4.  Can  not  elect  directors  until  one-half  capital  stock  is 
subscribed. 

Sec.  5057;  47  Pac.  789;  48  Pac.  474. 

5.  Stockholders'  meetings  must  all  be  held  in  the  State. 

Sec.  5062;  Doernbecher  vs.  Company,  28  Pac.  899. 

6.  Directors  must  be  stockholders,  and  a  majority  must 
reside  in  the  State  and  take  an  oath  of  office. 

Sec.  5059;  Silsby  vs.  Strong,  38  Ore.  36,  62  Pac.  633. 


46  INDUSTRIAL     CORPORATIONS 

7.  Directors  are  liable  for  illegal  declaration  of  dividends 
and  for  withdrawal  of  capital. 

Sec.    5666;   Patterson   vs.   Thompson,   86   Fed.   85,  90 
Fed.  647. 

8.  All  books  of  corporation  must  be  kept  within  the  State 
and  be  open  to  inspection. 

Sec.  5063 

9.  Annual  sworn  statement  must  be  filed  with  the  secre- 
tary, disclosing1  the  workings  of  the  company. 

Act.  1903,  sec.  5. 

10.  Charter  forfeited  for  abuse,  misuse  of  corporate  power, 
failure  to  elect  directors  and  commence  business  within  a  year, 
and  the  right  to  do  business  abates  so  long  as  the  franchise 
tax  is  unpaid. 

Sec.  5067;  Laws  1903,  p.  39. 

11.  No  provision  for  extension   of  duration  of  corporate 
existence. 

LIABILITIES,    COSTS,    ETC. 

1.  Organization    tax    increases    according    to    the    capital 
stock;  a  million-dollar  concern  would  cost  $75. 

2.  County  clerk's  fee  'is  $1.25  for  recording  articles. 

3.  Annual   license   fee    (or  franchise   tax)    is   also   appor- 
tioned according  to  the  capital  stock. 

4.  A  million-dollar  concern   would   cost  $125   license  tax 
per  annum. 

A  million-dollar  corporation  would  cost  over  $200  to  start 
in  with,  with  $125  license  tax  thereafter;  so  that,  considered 
in  connection  with  the  very  stringent  requirements  of  the 
law  over  the  working  operation  of  the  company,  eliminate 
Oregon  from  consideration  as  an  incorporation  State. 

§  88.    West  Virginia. 

The  disadvantages  of  incorporation  in  West  Virginia  are 
as  follows : — 


INITIAL     MEETING  47 

1.  Real  estate  corporation  can  not  be  incorporated. 

Code  of  W.  Va.  1899,  sec.  52;  Laws  of  1901,  chap.  35; 
Laws  1903,  chap.  3. 

2.  No  less  than  five  persons  can  incorporate. 

Sees.  54-56. 

3.  Annual  reports  must  be  made,  under  penalty. 

C.  W.  V.,  chap.  53,  sec.  46;  Laws  1901,  chap.  35. 

4.  Forfeiture  of  charter  may  be  had  for  failure, 

(a)  To  have  five  directors. 

C.  W.  V.,  chap.  53,  sec.  17. 

(b)  To  pay  license  tax. 

Laws  1901,  chap.  35 ;  1903,  chap.  4,  sec.  7. 

(c)  Suspension  of  business  for  two  years. 

(f)  To  organize  and  commence  business  in  two  years. 
Laws  1901,  chap.  35. 

(g)  Misuse  or  abuse  of  charter  rights. 
Chap.  109,  sees.  6-12. 

(h)  To  appoint  resident  agent. 

Chap.  54,  sec.  24;  Constitution,  art.  XI,  sec.  4. 

5.  Cumulative  voting  is  a  law  of  the  Constitution. 

Code  chap.  5,  sec.  44;  Cross  vs.  R.  R.,  35  W.  Va.  175. 

6.  Action   of   majority   of  directors   valid   without  notice 
to  the  minority. 

Acts  1901,  p.  100,  chap.  35,  sec.  6. 

LIABILITIES,    COSTS,    ETC. 

1.  Organization  tax  for  a  million-dollar  concern  is  $450; 
recording  cost  about  $12. 

2.  The  annual  franchise  tax  is  about  $410;  there  is  in  ad- 
dition to  this  a  collateral  inheritance  tax. 

3.  A  penalty  of  $5.00  after  September  1,  with  one  per  cent 
added  and  cost  of  publication  for  failure  to  pay  license  tax 
when  due. 

Chap.  19,  sec.  4. 


48  INDUSTRIAL     CORPORATIONS 

For  a  million-dollar  corporation  the  cost  would  be  about 
$460  to  begin,  and  not  less  than  $400  per  annum  thereafter, 
saying  nothing  about  the  collateral  inheritance  tax. 

The  laws  of  West  Virginia  were  evidently  prepared  to 
bid  for  the  incorporation  business  of  large  companies  in  the 
East;  while  there  are  few  objections  to  the  laws,  and  those 
not  of  a  serious  character,  still  the  fees  are  such  that  for  the 
ordinary  venture  company  it  must  be  eliminated  as  an  in- 
corporation State. 

§  89.     South  Dakota. 

The  objections  to  the  corporation  laws  of  South  Dakota 
are  as  follows : — 

1.  Not  less  than  three  can  incorporate,  one  third  of  whom 
must  reside  in  the  State. 

Revised  Civil  Code  S.  D.,  sec.  407;  Singer  Mfg.   Co. 
vs.  Peck,  9  S.  D.  29-67,  N.  W.  947. 

2.  Two   of   the    incorporators    must   make   the    anti-trust 
affidavit  under  penalty. 

Sees.  410,  411;  Penal  Code  781. 

3.  Corporate  power  ceases  unless  business  is  begun  within 
one  year. 

Sees.  411,  2905. 

4.  Must  provide  for  holding  meetings  without  State,  other- 
wise the  right  does  not  exist. 

Sees.  780,  3114,  440,  2932. 

5.  One  third  of  the  officers  must  be  residents  of  the  State. 

Sees.  434,  2926. 

6.  Directors    must    be    stockholders,    one    third    of    which 
must  reside  in  the  State. 

Sees.  434,  2926. 

7.  Directors  are  liable  by  statute  for  unlawful  withdrawal 
of  capital,  for  creating  debts  beyond   the   capital   stock,  for 
rendering  corporation  insolvent,  and  if  it  can  be  shown  that 
directors  assented  to  violation  of  law  for  fraudulent  appro- 


INITIAL     MEETING  49 

priation  of  property  or  failed  to  file  annual  reports,  or  false 
statement   in   annual   report,   they   are  jointly   and   severally 
liable  for  all  the  corporate  debts.     (This  liability  might  en- 
gender a  multiplicity  of  suits  against  the  directors.) 
Sees.  431,  2933,  784. 

8.  Stockholders  are  individually  liable  for  all  labor  claims 
contracted  by  the  corporation. 

Sees.  783,  3111. 

9.  Books  must  be  opened  for  subscription  to  stock,  which 
subscription  must  be  in  full. 

Sees.  421,  2913. 

10.  Sworn  annual  reports  must  be  made,  published,  and 
filed  with  the  register  of  deeds  where  the  business  is  trans- 
acted in  the  State. 

Sec.  784. 

11.  Neglect    to    sign,    file,    and    publish    annual    report    is 
guilty  of  a  misdemeanor. 

Sec.  3112. 

12.  Cumulative  voting  allowed. 
Constitution  S.  D.,  art.  17,  sec.  5. 

(This  is  a  legal  embargo  on  the  right  of  the  majority  rule.) 

13.  Corporate   stock   is  taxed  like  other  property  of  the 
State. 

14.  Forfeiture  of  charter  may  be  had  on  divers  and  sundry 
grounds  of  unimportant  character. 

Sees.  447,  2939,  571,  5346. 

15.  Legislature  has  power  to  inquire  into  corporations  and 
annoy  them ;  it  is  an  ex  parte  examination,  to  which  there  is 
no  defense. 

LIABILITIES,    COSTS,    ETC. 

1.  Organization  tax:  The  fees  are  small;  $25,000  or  less 
capital  stock,  $10 ;  $25,000  to  $100,000,  $25 ;  tax  up  to  $500,000, 
$20;  tax  up  to  $1,000,000,  $25;  tax  on  $1,000,000  or  more, 
$40. 


50  INDUSTRIAL     CORPORATIONS 

There  is  no  annual  franchise  tax  to  the  State,  but  the  law 
provides  for  the  publication  of  the  annual  report,  which  would 
cost  possibly  $25  to  $50  per  annum,  which  not  only  gives 
publicity  to  the  corporate  business  of  the  company,  but  puts 
an  arbitrary  newspaper  tax  upon  it  as  well. 

A  million-dollar  corporation  would  cost  $25,  and  $1.00  for 
certified  copy,  with  ten  cents  per  folio  for  the  articles  are 
charged  over  1,000  words,  making  a  total  of  about  $27. 

In  considering  this  fee,  a  solicitor's  fee  must  be  reckoned, 
cost  of  probably  $25,  or  a  total  cost  of  about  $40  or  $50,  pos- 
sibly less. 

The  laws  of  South  Dakota  should  be  remodeled  by  a 
commission  of  attorneys. 

There  are  so  many  unsettled  and  objectionable  features 
of  the  law  that,  notwithstanding  the  very  low  charges,  South 
Dakota  must  be  eliminated  from  the  consideration  of  an  in- 
corporating State. 

§  90.    Best  Place  to  Incorporate. 

The  classification  reached  from  the  foregoing  analysis  of 
the  objections  and  fees  of  the  various  States  considered  here, 
and  we  believe  it  to  be  a  correct  analysis  from  the  statutes 
cited,  we  do  not  hesitate  to  put  each  State  Avhere  we  think 
it  ranks  as  an  incorporating  State,  as  follows ;  to  wit : — 

First :     Arizona  Territory. 

Second:    West  Virginia  and  Connecticut. 

Third :     New  Jersey. 

Fourth :     New  York. 

We  disclaim  any  purpose  of  discrimination  in  favor  of 
one  State  against  another,  and  set  forth  the  facts  and  the 
law,  so  that  those  who  examine  them  may  reach  their  own 
conclusion,  if  the  conclusion  reached  by  us  is  unsatisfactory. 

Twelfth  minute :  It  was  decided  to  incorporate  in  (here 
insert  the  name  of  State  decided  upon). 

§  91.     Business  of  Incorporation  Talked  Over;  Adjournment, 

All  this  may  legally  be  done,  and  unless  a  record  is  de- 


INITIAL     MEETING  51 

sired,  usually  is  performed  by  simply  talking  it  over  among 
the  incorporators,  and  thus  dispose  of  it. 

The  above  suggestions  as  to  the  order  of  business  may 
be  discussed  at  the  formation  or  initial  meeting,  and  possibly 
presents  more  than  they  would  desire  to  discuss,  or,  it  may 
be,  far  less.  The  meeting  can,  and  usually  do,  discuss  and 
settle  upon  just  what  they  are  going  to  do  and  how  they  are 
going  to  do  it,  whether  it  be  little  or  much,  and  if,  for  any 
reason  the  questions  coming  before  the  meeting  are  such  that 
it  would  require  more  time  to  consider,  the  meeting  can  ad- 
journ to  a  time  and  place  then  fixed,  or  they  can  adjourn  to 
meet  at  the  call  of  the  chairman  pro  tern. 

In  any  and  in  all  cases  the  secretary  will  preserve  his 
minutes  and  present  them  to  the  next  regular  meeting  for 
adoption  or  rejection. 

The  last  matter  that  will  come  before  such  an  assembly 
is  the  motion  to  adjourn.  The  motion  to  adjourn  takes  prece- 
dent over  any  other  motion  except  the  motion  to  fix  the  time 
and  place  of  an  adjournment.  The  motion  to  adjourn  is  not 
debatable,  can  not  be  amended,  or  have  any  other  subsidiary 
motion  applied  to  it,  nor  is  it  subject  to  a  vote  to  reconsider. 
If  the  motion  to  adjourn  is  lost,  there  must  then  be  some 
business  transacted  before  it  will  be  in  order  for  another 
motion  to  adjourn. 

Robert's  "Rules  of  Order,"  pp.  37-191. 

Form  of  the  motion  is:  Usually  some  member  will  arise 
and  say,  "I  move  to  adjourn,"  to  meet  at  such  a  time  as  he 
may  specify  and  at  such  a  place  as  he  may  suggest ;  or  the 
motion  may  be  in  the  following  form,  that  "when  we  adjourn. 
we  adjourn  to  meet  at  the  call  of  the  chair."  If  the  motion 
is  in  the  last-named  form,  it  will  be  necessary  for  the  chair- 
man to  give  notice  to  the  members  of  the  time  and  place  and 
purpose  of  such  meeting.  These  proceedings  will  close  the 
initial  or  formation  meeting  of  the  incorporators. 


52  INDUSTRIAL     CORPORATIONS 


CHAPTER  VI. 

DRAFTING  THE   CHARTER   OR   ARTICLES   OF   INCOR- 
PORATION, 

§  92.     Conditions  Precedent  and  Subsequent. 

After  the  place  of  incorporation  has  been  decided,  the 
next  step  is  to  prepare  the  charter  or  Articles  of  Incorporation. 
This  is  an  important  piece  of  work. 

Where  the  laws  of  the  State  are  general  and  the  "condi- 
tions precedent  and  subsequent"  numerous,  the  drafting  of 
the  Articles  of  Incorporation  is  one  of  the  most  difficult,  as 
well  as  the  most  profound,  instruments  known  to  the  law. 
That  it  must  comply  with  the  "conditions  precedent  and  sub- 
sequent" and  secure  the  scope  and  power  of  business  required 
by  incorporators  is  the  result  desired. 

§  93.     Matter  Eliminated. 

Care  should  be  taken  that  the  Articles  of  Incorporation  is 
not  filled  with  any  of  the  following ;  to  wit : — 

1.  Matter  of  law:     This  is  matter  already  granted  by  the 
law,  either  express  or  implied,  as  the  law  is  as  much  a  part 
of  the  articles  as  if  it  was  written  into  the  articles  themselves; 
it  is  the  controlling  feature  of  the  articles. 

2.  Matter  of  by-law:     This  is  matter  pertaining  solely  to 
the  working  rules  of  the  corporation  under  the  law  and  the 
Articles  of  Incorporation. 

3.  Matter  of  contract:    This  is  matter  relating  to  the  right 
to  make  contracts,  which  is  an  inalienable  right  of  every  in- 
dividual in  the  corporation  as  well  as  the  corporation  itself, 
that  the  Legislature  can  neither  abbreviate,  abridge,  nor  deny. 
The  right  to  contract  could  not  possibly  be  made  stronger 
if  it  were  expressed  a  thousand  times  in  the  Articles  of  In- 
corporation. 


DRAFTING    THE    ARTICLES  53 

These  are  general  suggestions,  without  descending  to  the 
particulars  of  any  particular  charter  or  Articles  of  Incorpora- 
tion. 

We  can  not  insist  too  strongly  on  the  drafting  of  the  Arti- 
cles of  Incorporation.  The  charter  or  articles  are  property, 
valuable  property ;  the  franchise  secured  rests  in  the  powers 
enumerated  in  the  articles. 

If  the  powers  are  small,  the  value  of  the  corporate  fran- 
chise is  correspondingly  small,  the  scope  is  limited,  its  breadth 
is  narrow ;  hence  the  articles  should  be  prepared  by  a  lawyer 
who  understands  how  to  secure  the  greatest  powers  in  the 
first  instance.  That  the  powers  secured  depend  upon  the 
skill  of  the  attorney  who  prepares  it  can  not  be  doubted 

§  93a.     Corporate  Franchise  Is  Property. 

Said  the  Supreme  Court  of  the  United  States  in  Horn 
Silver  Mining  Co.  vs  State  of  New  York,  143  U.  S.  305  :— 

"The  right  and  privilege  or  franchise,  as  it  may  be  termed, 
of  being  a  corporation  is  of  great  value  to  its  members,  and  is 
considered  as  property,  separate  and  distinct  from  the  property 
which  the  corporation  itself  may  acquire." 

§  93b.     Particulars  of  the  Articles  of  Incorporation. 

Having  eliminated  generally  from  consideration  the  mat- 
ters not  to  be  put  into  the  Articles  of  Incorporation,  it  is 
important  to  descend  to  the  particular  matter  to  be  eliminated, 
and  point  out  what  is  to  be  put  into  the  Articles  of  Incorpora- 
tion from  an  analysis  of  the  particular  statutes. 

This  consideration  will,  if  followed  to  its  result,  involve 
an  analysis  of  all  the  statutory  enactments  of  the  various 
States  upon  the  law  of  corporations,  which  we  must  decline 
to  do  in  this  work,  as  it  could  serve  no  more  useful  purpose 
than  an  analysis  of  one  of  the  statutes  of  the  leading  States, 
inasmuch  as  the  same  reasoning  and  law  that  applies  to  one 
statute  will  apply  with  like  force  to  all  statutes  on  the  same 
state  of  facts  or  requirements  of  law,  as  well  as  furnish  a 
precedent  for  the  analysis  of  any  statute. 


54  INDUSTRIAL     CORPORATIONS 

§  94.     Powers  Eliminated  from  Charter. 

In  Sharswood  Blackstone  "Commentaries,"  Vol.  1,  p.  475, 
we  find  the  following  language  respecting  the  powers  of  a 
corporation  at  common  law ;  to  wit : — 

"After  a  corporation  is  so  formed  and  named,  it  acquires 
many  powers,  rights,  capacities,  and  incapacities,  which  we 
are  next  to  consider.  Some  of  these  are  necessarily  and  in- 
separably incident  to  every  corporation ;  which  incidents,  as 
soon  as  a  corporation  is  duly  erected,  are  tacitly  annexed,  of 
course,  as  (1)  to  have  perpetual  succession.  This  is  the  very 
end  of  its  incorporation;  for  there  can  not  be  a  succession 
forever  without  an  incorporation  ;  and,  therefore,  all  aggregate 
corporations  have  a  power  necessarily  implied  of  electing 
members  in  the  room  of  such  as  go  off.  2.  To  sue  or  be 
sued,  implead  or  be  impleaded,  grant  or  receive,  by  its  cor- 
porate name,  and  do  all  other  acts  as  a  natural  person  may. 
3.  To  purchase  lands,  and  hold  them  for  the  benefits  of  them- 
selves and  their  successors,  which  two  are  consequential  to 
the  former.  4.  To  have  a  common  seal;  for  a  corporation, 
being  an  invisible  body,  can  not  manifest  in  its  intentions  by 
any  personal  act  or  oral  discourse ;  it,  therefore,  acts  and 
speaks  only  by  its  common  seal.  For,  though  the  particular 
members  may  express  their  private  consent  to  any  acts,  by 
words  or  signing  their  names,  yet  this  does  not  bind  the  cor- 
poration ;  it  is  the  affixing  of  the  seal,  and  that  only,  which 
unites  the  several  assets  of  the  individuals  who  compose  the 
community,  and  makes  one  joint  assent  of  the  whole.  5.  To 
make  by-laws  or  private  statutes  for  the  better  government 
of  the  corporation,  which  are  binding  upon  themselves,  unless 
contrary  to  the  laws  of  the  land,  and  then  they  are  void. 
This  is  also  included  by  law  in  the  very  act  of  incorporation  ; 
for,  as  natural  reason  is  given  to  the  natural  body  for  the 
governing  it,  so  by-laws  or  statutes  are  a  sort  of  political 
reason  to  govern  the  body  politic.  And  this  right  of  making 
by-laws  for  their  own  government,  not  contrary  to  the  laws 
of  the  land,  was  allowed  by  the  law  of  the  twelve  tables  at 
Rome.  But  no  trading  company  is  with  us  allowed  to  make 
by-laws  which  may  affect  the  king's  prerogative  or  the  com- 
mon profit  of  the  people,  under  penalty  of  £40,  unless  they 
be  approved  by  the  chancellor,  treasurer,  and  chief  justices, 
or  the  judges  of  assize  in  their  circuits ;  and,  even  though  they 
be  so  approved,  still,  if  contrary  to  the  law,  they  are  void. 


DRAFTING    THE    ARTICLES  55 

These  five  powers  are  inseparably  incident  to  every  corpora- 
tion, at  least  to  every  corporation  aggregate." 

§  95.     Doctrine  Not  Contract  Without  Seal  Exploded. 

The  doctrine  laid  down  in  the  text  is  now  repudiated 
everywhere  in  the  United  States,  if  not  in  England.  Cor- 
porations, through  their  officers  and  agents,  may  do  valid 
acts  and  make  valid  contracts  within  the  scope  of  the  cor- 
porate power,  either  oral  or  in  writing,  without  seal;  and, 
indeed,  contracts  may  be  implied  as  against  corporations  just 
as  they  may  be  against  individuals.  Says  Judge  Story: — 

"The  technical  doctrine  that  a  corporation  could  not  con- 
tract except  under  its  seal,  or,  in  other  words,  could  not 
make  a  promise,  if  it  ever  had  been  fully  settled,  must  have 
been  productive  of  great  mischiefs. 

"Indeed,  as  soon  as  the  doctrine  was  established  that  its 
regular  appointed  agent  could  contract  in  its  name,  without 
seal,  it  was  impossible  to  support  it ;  for  otherwise  the  party 
who  trusted  such  contract  would  be  without  remedy  against 
the  corporation.  Accordingly,  it  would  seem  to  be  a  sound 
rule  of  law  that  whenever  a  corporation  is  acting  within  the 
scope  of  the  legitimate  purposes  of  its  institution,  all  parol 
contracts  made  by  its  authorized  agent  are  express  promises 
of  the  corporation,  and  all  benefits  conferred  at  their  request 
raise  implied  promises,  for  the  enforcement  of  which  an  action 
may  well  lie.  See  Bank  of  Columbia  vs.  Patterson's  Admin- 
istrators, 7  Cranch  306.  The  reason  assigned  for  the  old  no- 
tion was  that  a  corporation  being  incorporeal,  and  conse- 
quently incapable  of  speaking,  it  was  impossible  that  it  should 
enter  into  a  parol  contract.  But,  upon  reflection,  this  reason 
has  been  thought  insufficient ;  for,  if  pursued  to  its  full  extent, 
it  would  prove  that  a  corporation  could  not  act  at  all.  It 
has  no  hand  to  affix  a  seal,  and  must  therefore  employ  an 
agent  for  the  purpose.  But  this  agent  must  receive  his  author- 
ity previous  to  his  affixing  the  seal. 

"It  is  necessary,  therefore,  that  the  corporation  should  have 
the  power  to  act  without  seal,  so  far  as  respects  the  appoint- 
ment of  a  person  to  affix  the  seal.  Now,  if  it  can  appoint 
an  agent  without  seal  for  one  purpose,  there  is  no  reason  why 
it  may  not  for  another." 

Turnpike  Co.  vs.  Rutter,  4  S.  &  R.  16;  Hamilton  vs. 
Lycoming  Ins.  Co.,  5  Barr  339. 


56  INDUSTRIAL     CORPORATIONS 

"It  is  true  that  a  corporation,  being  an  ens  Icgis,  has  no 
inherent  power  to  act,  or,  indeed,  any  power  at  all  beyond 
what  is  necessary  to  accomplish  the  end  of  its  being;  but  it 
is  also  true  that  within  the  scope  of  its  legitimate  functions 
it  may  act  as  a  natural  person  might.  In  denning  its  power, 
it  would  be  impracticable  to  enumerate  them  specifically  or 
to  do  more  than  circumscribe  the  field  of  its  action,  leaving 
it  to  exercise  all  those  that  are  incidental  and  necessary  to 
the  purposes  of  its  creation." 

Cumberland  Valley  R.  R.  Co.  vs.  Baab,  9  Watts  460. 

The  reason  above  stated  at  common  law,  why  a  corpora- 
tion could  not  contract  without  a  seal,  because  of  its  having 
no  voice,  withering  under  the  power  of  the  great  Judge  Story, 
illustrates  more  forcibly  the  fallibility  of  some  of  the  old 
notions  of  the  law  when  it  encounters  the  business  and  pro- 
gressive ability  of  this  age  than  possibly  could  any  other  fact. 

It  also  shows  that  the  only  meets  and  bounds  that  limit 
the  action  of  our  courts  is,  Is  it  right? 

Right  is  the  foundation  stone  upon  which  all  things  must 
rest,  to  which  all  business  must  bow  and  law  yield.  What 
right  is,  is  difficult  to  know,  as  it  must  come  from  the  reason 
of  the  mind,  after  it  has  brought  to  its  aid  the  business  cus- 
toms of  the  country  as  practiced  by  the  people,  together  with 
the  soundest  legal  philosophy  as  laid  down  by  the  great  minds 
of  the  earth. 

§  96.     Combination  Idea. 

One  of  the  original  notions  of  a  corporation  was  com- 
bination as  under  the  Roman  law  from  whence  it  sprang, 
"Three  form  a  corporation,"  no  less,  yet  while  this  was  true 
in  its  formation,  still  afterward,  if  it  was  reduced  to  one,  the 
corporation  still  existed. 

Sharswood  Blackstone,  Vol.  1,  p.  468. 

The  requirements  of  the  English  lawyer  produced  the  sole 
corporation.  The  king  was  a  sole  corporation.  This  fiction 
grew,  no  doubt,  out  of  the  desire  to  perpetuate  the  system 
of  control  of  government  and  of  things  best  suited  to  those 
then  in  control  of  the  government,  and  to,  at  the  same  time, 


DRAFTING    THE    ARTICLES  57 

prepare  a  system  that  would  be  law  when  called  in  question, 
and  there  would  be  no  means  of  removing  the  law  except  to 
remove  the  law-giving  source. 

Whether  any  system  of  combination  is  right  is  quite 
another  question.  Government  itself  is  combination.  If  it 
is  right  for  the  mass  of  the  people  or  any  definite  part  of 
the  people  of  the  earth  to  combine,  why  is  it  not  for  the  same 
reason  right  for  any  number  of  persons  or  one  person  to 
follow  the  same  system? 

The  common  law  defined  the  powers  of  a  corporation,  and 
circumscribed  the  limit  of  those  powers  in  the  second  enu- 
meration of  powers  as  that  of  a  natural  person. 

Whatever  the  scope  of  a  natural  person  at  that  time 
undoubtedly  was  the  only  limit  placed  on  the  acts  or  things 
that  a  corporation  could  do  in  the  business  or  matter  desig- 
nated in  the  charter. 

§  97.     Two  Ends  Reached  by  Incorporation. 

It  will  be  noted  by  an  examination  of  the  effort  of  the 
Roman  and  English  lawyers  in  the  erection  of  the  corporation 
that  they  sought  to  reach  two  ends : — 

1.  To  clothe  corporations  with  the   same  legal   scope  as 
a  natural  person. 

2.  To  crown  this  corporate  fiction  with  a  legal  immortality. 
Speaking  of  the  result  desired  by  the  creation  of  the  cor- 
porate fiction,  Judge  Sharswood  said : — 

"In  order  to  preserve  entire  and  forever  those  rights  and 
immunities  which,  if  they  were  granted  only  to  individuals 
of  which  the  body  corporate  is  composed,  would  upon  their 
death  be  utterly  lost  and  extinct.  .  .  .  But  when  they  are 
consolidated  and  united  into  a  corporation,  they  and  their 
successors  are  then  considered  as  one  person  in  law.  As 
one  person,  they  have  one  will,  which  is  collected  from  the 
sense  of  the  majority  of  the  individuals.  This  one  will  may 
establish  rules  and  orders  for  the  regulation  of  the  whole, 
which  are  a  sort  of  municipal  laws  of  this  little  republic ;  or 
rules  and  statutes  may  be  prescribed  to  it  at  its  creation, 
which  are  then  in  the  place  of  the  natural  laws.  The  privi- 
leges and  immunities,  the  estates  and  possessions,  of  the  cor- 


58  INDUSTRIAL     CORPORATIONS 

poration,  when  once  vested  in  them,  will  be  forever  vested, 
without  any  new  conveyance  to  new  successions ;  for  all  the 
individual  members  that  have  existed  from  the  foundation  to 
the  present  time,  or  that  shall  ever  hereafter  exist,  are  but 
one  person  in  law,  a  person  that  never  dies,  in  like  manner 
as  the  River  Thames  is  still  the  same  river,  though  the  parts 
which  compose  it  are  changing  every  instant." 

Sharswood    Blackstone    "Commentaries,"    Vol.    1,    pp. 

467-478. 

"The  honor  of  originally  inventing  these  political  Consti- 
tutions entirely  belongs  to  the  Romans." 

Sharswood  Blackstone,  Vol.  1,  p.  468. 

It  would  therefore  appear  to  be  a  necessity  to  the  per- 
petuity of  the  identity  of  the  State  as  well  as  the  private 
interests  of  those  who  compose  it. 

The  difficulty  has  not  been  in  the  application  of  the  prin- 
ciples of  corporate  authority  to  the  public  functions  as  it 
has  to  apply  the  corporate  principles  to  the  industrial  in- 
stitutions of  private  individuals. 

The  idea  that  all  authority  must  emanate  from  the  State 
by  an  act  of  the  Legislature  in  granting  its  charter  founded 
the  impression  that  the  corporation  had  some  sort  of  sov- 
ereignty and  had  no  power  except  such  as  was  specifically 
designated  by  the  act  creating  it  and  its  charter. 

However,  since  the  Legislatures  have  generally  (except 
in  seven  States)  superseded  the  legislative  sanction  directly 
with  general  legislative  enactments  enumerating  and  grant- 
ing generally  certain  powers  together  with  certain  "condi- 
tions precedent"  to  be  complied  with  in  order  to  erect  the 
corporate  fiction,  it  has  in  a  certain  sense  reversed  the  lim- 
itation on  corporate  powers  and  returned  to  the  original  idea, 
that  a  corporation  has  all  the  rights  in  business  that  a  nat- 
ural person  has,  and  it  has  no  sovereign  authority  whatever. 

The  powers  originated  and  applied  by  the  Romans  to 
corporations  aggregate,  and  in  turn  adopted  and  applied  by 
the  English  lawyers  to  corporation  aggregate  and  sole,  are 
as  broad  in  their  scope  as  can  be  made  because  their  scope 


DRAFTING    THE    ARTICLES  59 

is  as  broad  as  the  horizon  of  an  individual,  which  is  with- 
out limit  except  where  it  infringes  on  the  just  rights  of  others. 
It  follows,  therefore,  that  the  limitations  on  the  power 
of  a  private  individual  to  do  business  are  such  as  are  within 
the  Constitutions  and  the  laws  of  the  land,  together  with 
such  inalienable  rights  as  belong  to  his  natural  existence, 
and  that  the  rights  of  a  corporation,  the  artificial  being,  in 
business  are  the  same  unless  restricted  by  the  powers  enumer- 
ated in  the  statutes  under  which  the  corporation  is  created. 

§  97b.     Powers  Unnecessary  in  Articles  Are  Eliminated. 

Coming  now  to  an  understanding  of  the  powers  of  a  cor- 
poration at  common  law  as  an  "incident,"  "tacitly  annexed 
of  course,"  upon  its  erection,  prepares  us  to  understand  that 
the  corporate  existence  is  one  thing  and  the  powers  inci- 
dent thereto  are  quite  another,  and  that  at  common  law  the 
enumeration  of  the  powers  were  unnecessary  to  be  put  in  the 
corporate  charter  because  they  are  tacitly  annexed  ipso  facto 
upon  its  formation  of  course. 

Such  powers  or  rights  attached  at  once  upon  the  com- 
ing into  existence  of  the  artificial  person  like  the  inalienable 
rights  of  a  natural  person  upon  their  coming  into  existence. 
And,  therefore,  no  reason  exists  why  they  should  be  enumer- 
ated in  the  Articles  of  Incorporation,  as  such  enumeration 
would  only  encumber  the  articles. 
§  97c.  Inalienable  Rights  of  Corporation. 

We  shall  therefore  call  such  powers  or  rights  as  "are  nec- 
essarily and  inseparably  incident  to  every  corporation  (Shars- 
wood  supra)"  the  inalienable  rights  of  a  corporation. 

The  inalienable  rights  of  a  corporation  are  analogous  to 
the  inalienable  rights  of  every  natural  person;  this  must  be 
understood  to  be  within  the  business  in  which  the  corpora- 
tion is  to  engage,  as  the  industrial  or  private  corporation  is 
that  to  which  reference  is  had. 

The  right  of  contract  is  an  inalienable  right  inseparable 
from  the  right  of  property  under  the  scheme  of  private  owner- 
ship of  property. 


60  INDUSTRIAL     CORPORATIONS 

Almost  every  human  action  concerning-  property  is  a  con- 
tract, either  express  or  implied,  written  or  verbal. 

The  Constitution  of  the  United  States  provides  that  "no 
State  shall  .  .  .  pass  any  .  .  .  law  impairing  the  ob- 
ligation of  contracts." 

Constitution  U.  S.,  Sec.  10. 

This  constitutional  inhibition,  by  the  sovereign  powers 
of  the  United  States,  against  the  invasion  of  the  right  of 
contract  by  the  several  States,  adds  nothing  to  the  inalien- 
able right  of  contract  inherent  in  every  person  for  that  it  is 
an  inalienable  right  "necessarily  and  inseparably  incident" 
to  his  very  existence  "tacitly  annexed  of  course." 

The  Constitution  in  no  respect  infringes  the  right  of  con- 
tract, but  leaves  that  power  where  it  rightfully  belongs 
respectively  with  the  people. 

Amendment  to  Constitution,  Art.  X. 

In  the  light  of  these  suggestions  and  conclusions,  we  are 
prepared  to  understand  the  language  of  Blackburn  J.  in  Ash- 
bury  Ry.  Carriage  &  Iron  Co.  vs.  Riche  L.  R.  9  Exch.  224; 
to  wit : — 

"I  take  it  that  the  true  rule  of  law  is  that  a  corporation 
at  common  law  has,  as  an  incident  given  by  law,  the  same 
power  to  contract,  and  subject  to  the  same  restrictions,  as  a 
natural  person  has.  And  this  is  important  when  we  come 
to  construe  the  statutes  creating  a  corporation  ;  for  if  it  were 
true  that  a  corporation  at  common  law  has  a  capacity  to  con- 
tract to  the  extent  given  it  by  the  instrument  creating  it,  and 
no  further,  the  question  would  be,  Does  the  statute  creating 
the  corporation  by  express  provision  or  necessary  implication 
show  an  intention  in  the  Legislature  to  confer  upon  this  cor- 
poration capacity  to  make  the  contracts?  But  if  a  body  cor- 
porate has,  as  incident  to  it,  a  general  capacity  to  contract, 
the  question  is,  Does  the  statute  creating  the  corporation  by 
express  provision  or  necessary  implication  show  an  intention 
in  the  Legislature  to  prohibit,  and  so  avoid  the  making  of  a 
contract  of  this  particular  kind?" 

In  Thomas  against  West  Jersey  R.  Co.,  101  U.  S.  71,  the 
Supreme  Court  of  the  United  States  said : — 


DRAFTING    THE    ARTICLES  6l 

"We  take  the  general  doctrine  to  be  in  this  country,  though 
there  may  be  exceptional  cases  and  some  authorities  to  the 
contrary,  that  the  powers  of  the  corporations  organized  under, 
legislative  statutes  are  such,  and  such  only,  as  those  statutes 
confer.  Conceding  the  rule  applicable  to  all  statutes,  that 
what  is  fairly  implied  is  as  much  granted  as  what  is  expressed, 
it  remains  that  the  charter  of  a  corporation  is  the  measure 
of  its  powers,  and  that  the  enumeration  of  these  powers  implies 
the  exclusion  of  all  others." 

Powers  of  corporations  are  as  broad  as  those  of  individuals, 
unless  restricted  by  statutes. 

Thompson  vs.  Lambart,  44  la.  239. 

Same  power  as  to  making  contracts  as  an  individual. 

Warfield  vs.  Marshall  County  Counery  Co.,  72  la.  666. 
A  corporation   can  do  any  act  not  specially  inhibited  by 
legislative  enactment. 

Handley  vs.  Stulz,  139  U.  S.  417. 

The  pivotal  point  to  be  considered,  then,  in  considering  the 
statute,  is  to  see  and  understand  whether  the  statute  restricts 
the  common  law  powers  of  a  corporation  or  lays  any  embargo 
on  the  corporation  to  lessen  its  rights  and  to  bring  it  far  within 
the  scope  of  a  natural  person,  for  the  rule  is  that  which  is  not 
specially  inhibited  by  statute  is  as  much  granted  as  if  it  was 
expressly  given,  because  every  inalienable  right  of  a  corpora- 
tion belongs  to  it  as  the  gist  of  its  very  existence,  necessarily 
and  inseparably  incident  to  its  being  as  an  institution  of  the 
common  law. 

Hence  a  statute  that  has  the  least  restrictions  will  have 
the  widest  scope,  and  the  greater  restrictions  the  narrower 
scope  for  the  corporation,  and  the  powers  or  inalienable  rights 
of  a  corporation  must  not  be  put  into  the  Articles  of  In- 
corporation. 

§  98.     Arizona  Corporate  Power. 

Among  the  powers  of  such  bodies  corporate  shall  be  the 
following : — 

1.  To  have  perpetual  succession. 


62  INDUSTRIAL     CORPORATIONS 

2.  To  sue  and  be  sued  by  the  corporate  name. 

3.  To  have  a  common  seal  and  alter  the  same  at  pleasure. 

4.  To  render  the  shares  or  interest  of  stockholders  trans- 
ferable, and  prescribe  the  mode  of  making  such  transfers. 

5.  To  exempt  the  private  property  of  members  from  lia- 
bility for  corporate  debts. 

6.  To  make  contracts,  acquire  and  transfer  property,  pos- 
sessing the  same  power  in  such  respects  as  private  individuals 
now  enjoy. 

7.  To  establish  by-laws  and  make  all  rules  and  regulations 
deemed   expedient   for   the   management   of   their   affairs   not 
inconsistent  with  the  Constitution  and  the  laws  of  the  United 
States  and  the  laws  of  this  Territory. 

Ariz.  Rev.  Stat.,  par.  765,  sec.  5. 

§  98a.     Powers   at   Common   Law  Analyzed  and   Compared 

with  Arizona. 

An  analysis  of  these  statutory  powers  and  a  comparison 
thereof  with  the  incident  corporate  powers  at  common  law, 
we  find : — 

1.  That  "to  have  perpetual  succession"  was  the  first  enu- 
meration of  the  powers   at   common   law.     This  means  that 
the  corporation  will  go  on  regardless  of  who  owns  its  stock, 
or  whether  they  may  or  may  not  sell,  assign,  or  die,  and  the 
stock  descend  to  their  heirs,  and  that  in  no  case  is  the  cor- 
poration affected. 

2.  To  sue  and  be  sued  by  its  corporate  name  is  also  one 
of  the  incident  corporate  rights  at  common   law. 

3.  To  have  a  common  seal  and  alter  the  same  at  pleasure 
is  a  deviation  from  the  corporate  notion  at  common  law,  as 
has  been  heretofore  shown.     A  seal  is  not  of  very  grave  im- 
portance,  as   has   been    shown,   because   the   doctrine   that   a 
corporation    could   not    act    except    under   seal    has    all    been 
exploded,  a   seal   being  no  longer  necessary   unless   an   indi- 
vidual would  have  to  use  a  seal,  and  in  such  case  any  scrawl 
will  do,  if  that  is  the  seal  of  the  company. 


DRAFTING    THE    ARTICLES  63 

4.  This    enumeration    is    a    power   not   found    specifically 
enumerated  in  the  common  law  powers,  but  the  powers  enu- 
merated at  common  law  were  general,  and  cover  this  feature, 
as  the  issue  of  stock  by  corporations  were  not  then  regulated 
by  law,  as  it  was  a  mere  matter  of  business  of  the  incorpora- 
tors  among  themselves. 

Lay  or  business  corporations  at  common  law  were  sub- 
ject to  no  particular  statutes.  Their  powers  were  powers 
incident  to  their  creation,  and  rested  in  the  custom  of  long 
usage  for  authority. 

Sharswood  Blackstone  "Commentaries,"  vol.  1,  p.  475. 

"Their  charters  or  immemorial  usages,  which  are  equiva- 
lent to  the  express  provisions  of  charter,  are,  in  fact  their 
statutes." 

Chitty ;  Sharswood  supra. 

As  the  issuing  of  stock  is  only  one  of  the  things  done  by 
corporations,  necessarily  a  corporation  had  the  power  to  issue 
stock  according  to  the  customs  and  usages  of  corporations 
at  common  law. 

At  the  common  law,  the  length,  breadth,  and  depth  of  the 
corporation  was  the  horizon  of  the  rights  of  natural  persons ; 
they  looked  to  no  law  for  their  powers  but  their  own  imme- 
morial usages  and  customs. 

5.  Is  not  an  enumeration  of  powers  specifically  found  at 
common  law  and  possibly  no  such  right  existed.     It  is  a  very 
beneficial  power  of  the  stockholder,  because  it  enables  him 
to  limit  his  liability  to  the  amount  he  puts  into  his  corporate 
venture.      He   can   lose   no   more   than   he   risks,   and   those 
who  deal  with  the  corporation  have  notice  that  they  must 
look  to  the  corporate  assets  for  their  security,  and  to  no  other 
source. 

6.  All  the  elements  of  this  power  are  found  in  the  various 
enumerated  powers  of  the  common  law. 

"To  make  contracts"  is  a  power  which  it  is  difficult  to 
see  how  an  industrial  corporation  could  exist  without.  It 
covers  every  conceivable  contract  which  a  corporation  nee- 


64  INDUSTRIAL     CORPORATIONS 

essarily  would  have  to  make ;  and  should  any  question  arise 
regarding  whether  a  corporation  would  have  the  right  to  do 
or  perform  a  given  transaction,  it  would  only  be  necessary 
to  determine  whether  it  required  a  contract  or  not. 

"Acquire  and  transfer  property"  in  power  supra  scarcely 
enlarges  upon  the  power  to  make  contracts,  as  to  "acquire 
and  transfer  property"  covers  all  classes  of  property  real, 
personal,  and  mixed,  besides,  it  is  scarcely  conceivable  how 
property  could  be  acquired  or  transferred  in  a  business  way 
except  by  contract,  either  express  or  implied. 

"Possessing  the  same  powers  in  such  respects  as  private 
individuals  now  enjoy," — this  language  serves  to  instruct 
concerning  the  limitation  of  corporate  right  of  contract  and 
property,  beyond  which  no  human  power  can  go.  The  power 
of  a  corporation  is  encompassed  within  no  narrower  limits 
than  a  natural  person  in  regard  to  contracts  and  property. 
Its  right  therein  is  as  strong  as  a  natural  person  and  as 
much  stronger  as  the  law  gives.  It  is  as  weak  as  a  natural 
person  and  no  weaker ;  there  is  no  contract  it  can  not  make ; 
there  is  no  property  it  can  not  own.  For  that  natural  per- 
sons are  the  authors  of  contract  and  the  inventors  of  the 
scheme  of  private  property,  although  broad  and  unlimited 
in  its  scope,  this  power  adds  nothing  to  the  corporate  rights 
already  enjoyed  at  common  law. 

7.  The  power  to  make  by-laws  is  the  same  as  at  common 
law.  This  was  a  power  delegated  to  corporations  found  in 
the  twelve  tables  at  Rome. 

Sharswood  Blackstone  "Commentaries,"  vol.  1,  p.  475. 

The  right  to  make  by-laws  for  this  artificial  person  as  they 
conceived  it  was  necessary   to  its  welfare  and  analogous  to 
reason  possessed  by  natural  persons. 
Sharswood  supra. 

Corporate  powers  seen,  understood,  and  eliminated  from 
the  articles  prepare  us  to  understand  what  the  law  requires 
to  be  put  into  the  Articles  of  Incorporation. 


DRAFTING    THE     ARTICLES  65 

§  99.     Analysis  of  the  Corporate  Law  of  Arizona. 

Descending  now  to  the  statutory  enactments  required  to 
be  met  in  the  Articles  of  Incorporation  as  found  in  the  laws 
of  Arizona,  which  will  serve  as  an  illustration  of  the  require- 
ments of  any  general  incorporating  law  of  any  State. 

Every  State  and  Territory  of  the  Union,  but  seven,  has 
general  incorporation  acts  which  contain  requisites  to  be  per- 
formed and  complied  with  before  incorporation  can  be  had, 
completed,  or  reached.  Articles  of  Incorporation  that  do  not 
show  a  compliance  with  such  statutory  requisites  or,  in  legal 
phraseology,  "conditions  precedent,"  are,  as  eyery  lawyer 
knows,  without  force,  or  legal  effect,  and  are  only  so  much 
waste  paper,  and  void. 

These  conditions  precedent,  however  useless,  arbitrary,  or 
unreasonable  they  may  seem,  must  be  complied  with  to  the 
letter.  These  conditions  precedent  are  the  terms  of  the  con- 
tract offered  by  the  State,  and  unless  they  are  complied  with 
by  the  individuals  who  form  the  corporation,  they  fail  to 
comply  with  the  terms  of  the  contract,  and  for  that  reason 
no  contract  ever  comes  into  existence,  or  can  ever  exist. 
Hence  the  importance  of  compliance  with  each  and  every 
one  to  a  letter. 

§  100.     "Conditions  Precedent." 

The  same  will  that  can  grant  corporate  rights  or  powers 
can  pronounce  the  terms  and  conditions  of  the  grant,  without 
a  compliance  with  which  the  corporate  franchise  can  not  exist. 
Conditions  precedent  are  mandatory  provisions  of  the  law 
or  necessary  steps  in  the  process  of  incorporation.  A  material 
omission  of  any  one  of  them  will  be  fatal  to  the  existence 
of  the  corporation. 

Martin  vs.  Deets,  102  Cal.  55. 

In  the  case  of  Mokelume  Hill  Canal  Min.  Co.  vs.  Wood- 
bury,  14  Cal.  424,  it  is  said : — 

"There  is  a  broad  and  obvious  distinction  between   such 
acts  and  arc  declared  to  be  necessary  steps  in  the  process  of 
6 


66  INDUSTRIAL     CORPORATIONS 

incorporation,  and  such  steps  as  are  required  of  the  individuals 
seeking  to  become  incorporated  but  are  not  made  prerequisites 
to  the  assumption  of  corporate  powers.  In  respect  to  the 
former,  any  material  omission  will  be  fatal  to  the  existence 
of  the  corporation,  and  may  be  taken  advantage  of  collater- 
ally, in  any  form  in  which  the  fact  of  incorporation  can 
properly  be  called  in  question." 

Wall  vs.  Mine,  130  Cal.  27;  Martin  vs.  Deets,  102  Cal. 
55;  Hyde  vs.  Doe,  4  Sawy.  133;  Fed.  Cas.  No.  6969; 
Atty.  Gen.  vs.  Houchett,  42  Mich.  436;  4  N.  W.  182; 
Montgomery  vs.  Forbes,  148  Mass.  249;  19  N.  E.  342, 
and  1  Gumming,  Cas.  priv.  Corp.  69 ;  State  vs.  Critchett, 
37  Minn.  13;  32  N.  W.  787;  Broderi  vs.  Salmon,  2  Ch. 
323;  Utley  vs.  Tool  Co.,  11  Gray  (Mass.)  139;  Unity 
Ins.  Co.  vs.  Cram,  43  N.  H.  636;  Corey  vs.  Morrell,  61 
Vt.  598,  17  Atl.  840;  Reed  vs.  Railway  Co.,  50  Ind.  342; 
Busenback  vs.  Road  Co.,  42  Ind.  265;  Miller  vs.  Road 
Co.,  52  Ind.  51 ;  State  vs.  Central  Ohio  Mut.  Relief 
Ass'n,  29  Ohio  st.  399;  Harris  vs.  McGregor,  29  Cal. 
124;  Montgomery  vs.  Forbes,  149  Mass.  249:  19  N.  E. 
342;  1  Cummings,  Cas.  Priv.  Corp.  69;  Clegwood  vs. 
Grange  Co.,  41  2a  122;  Wesy  vs.  Ditching  Co.,  32  Ind. 
138;  O'Reiley  vs.  Draining  Co.,  id.  169;  Atty.  Gen.  vs. 
Lorman,  59  Mich.  157;  26  N.  W.  311;  In  Re  Crown 
Bank,  44  Ch.  Div.  634;  People  vs.  Selfridge,  52  Cal. 
331 ;  Kaiser  vs.  Bank,  56  Iowa  104;  8  N.  W.  772;  State 
vs.  Beck,  81  Ind.  500. 

To  illustrate  the  nicety  of  distinction  to  which  our  courts 
are  compelled  to  descend  in  order  to  protect  the  rights  of 
the  State  on  the  one  hand  and  safeguard  the  right  of  indi- 
viduals on  the  other  under  the  law,  we  quote  from  the  Su- 
preme Court  of  Texas,  as  it  expounds  the  statutory  "con- 
ditions precedent"  requiring  the  "purpose"  of  the  corpora- 
tion to  be  stated  in  the  Articles  of  Incorporation : — 

"A  charter  must  set  forth  the  purpose  for  which  it  is  formed. 
This  for  the  reason  that  if  it  had  been  intended  that  a  cor- 
poration might  be  created  for  two  or  more  of  the  purposes 
specified  in  the  statute,  it  would  have  been  proper  to  have 
stated  "purpose  or  purposes  for  which  it  was  formed."  The 
use  of  the  word  "purpose"  in  the  singular  number  tends  to 
show  that  it  was  the  intention  of  the  Legislature  to  authorize 


DRAFTING    THE    ARTICLES  67 

the  creation  of  a  corporation  for  only  one  purpose.  It  may 
be  true  that  the  use  of  the  singular  number  may  not  be  the 
conclusion  of  the  question,  and  that  if  there  were  other  pur- 
poses in  the  act  which  either  by  express  declaration  or  clear 
implication  indicate  that  it  was  intended  to  authorize  incor- 
poration for  two  or  more  of  the  designated  purposes,  whether 
in  the  same  subdivision  or  not,  we  should  so  hold." 

Ramsey  vs.  Tod,  95  Texas  614;  69  S.  W.  133. 

It  will  be  noted  from  the  array  of  authorities  here  cited 
that  no  difference  of  opinion  is  entertained  by  the  great  jurists 
of  our  country  upon  the  compliance  with  the  necessary  steps 
of  the  law  or  "condition  precedent"  before  a  dc  jure  incor- 
poration can  be  had. 

It  then  becomes  vital  to  know  in  every  instance,  under 
whatever  law  incorporation  is  sought,  what  is  necessary  and 
what  is  not,  what  to  do  and  how  to  do  it,  who  can  perform 
these  acts,  and. who  can  not. 

It  may  now  be  said  that  Articles  of  Incorporation  is  one  of 
the  most  profound  documents  or  legal  accomplishments 
known  to  the  law,  requires  not  only  the  intelligence  of  a 
lawyer  to  prepare,  but  a  lawyer  of  skill  and  ability  as  well. 
It  is  not  a  school-boy's  essay,  nor  a  rambling  harangue  of  a 
political  sachem,  nor  is  it  a  paper  within  the  scope  of  the 
every-day  business  man,  much  less  within  the  range  of  gen- 
erals fresh  from  the  red  bush.  Thrice  more  authorities  could 
be  cited  showing  instances  throughout  the  States  of  the  Union 
where  corporations  have  been  stripped  of  their  franchises  and 
authority  by  the  courts  of  the  land,  and  their  charters  left  bar- 
ren, useless,  and  more  than  worthless,  but  it  would  encumber 
rather  than  tend  more  clearly  and  forcibly  to  illustrate  the 
absolute  necessity  of  compliance  with  every  condition  prece- 
dent found  in  the  law. 

§  lOOa.  Analysis  of  Conditions  Precedent  of  Laws  of  Arizona. 
It  will  be  profitable  to  segregate  and  separate  the  "con- 
ditions precedent"  found  in  the  statute  of  Arizona,  and  each 
one  analyzed,  and  its  ingredients  or  requisites  clearly  pointed 
out  and  set  forth. 


68  INDUSTRIAL     CORPORATIONS 

Beginning  with  par.  766,  sec.  6.  Rev.  Stat.  Ariz.  Ter.,  as 
amended  by  the  acts  of  1903,  page  140  reads:—- 

"Before  commencing  any  business  except  that  of  their  own 
organization,  they  must  adopt  Articles  of  Incorporation,  which 
shall  be  signed  and  acknowledged  by  them  as  deeds  are  re- 
quired to  be  acknowledged  and  recorded  in  a  book  for  that 
purpose,  in  the  office  of  the  county  recorder,  where  the  prin- 
cipal place  of  business  is  to  be." 

First,  Articles  of  Incorporation  must  show  adoption  on 
their  face. 

In  Smith  vs.  Silver  Val.  Min.  Co.  (Md.),  20  Atlantic  1032, 
Justice  Miller  said  : — 

"The  mere  grant  of  a  charter,  where  it  does  not  appear 
upon  the  face  of  the  incorporating  act,  or  otherwise,  that  the 
named  corporators  applied  for  it,  does  not  create  the  cor- 
porate body.  Something  must  be  done.  There  must  be  at 
least  an  acceptance  of  the  grant  by  a  majority  of  the  cor- 
porators before  corporate  life  and  existence  can  be  begun." 

Adoption  in  the  articles  sjiows  the  "acceptance  of  the 
grant"  by  all  the  incorporators. 

The  word  "adopt"  is  exclusive  in  the  statute.     It  has  no 
counterpart.     It  has  no  synonym  in  the  English  language. 
Webster's  Dictionary,  Unabridged. 

"Adopt"  omitted  from  the  "articles"  leaves  out  the  first 
condition  precedent  required  by  the  statute  of  Arizona. 

Second,  "Articles"  must  be  "signed"  by  two  persons  at 
least. 

R.  S.  Supra;  R.  S.  764,  sec.  4. 

Signing  the  Articles  of  Incorporation  need  not  be  within 
the  State  where  they  are  to  be  procured. 

Humphrey  vs.  Mooney,  5  Colo.  282. 

"Dummies"  will  not  suffice. 

R.  S.  766,  sec.  6;  Broderick  vs.  Salmon  L.  R.,  2  chap. 
323;  Kaiser  vs.  Bank,  56  Iowa  104. 

Initials  of  surname  sufficient. 
State  vs.  Beck,  81  Ind.  500. 


DRAFTING    THE    ARTICLES  69 

Signing  by  mark  is  sufficient. 

Trustee  vs.  Campbell,  46  La.  Ann.  1543;  21  So.  184. 

Third,  "Articles"  must  be  acknowledged  as  "deeds." 

R.  S.  766,  sec.  6;  Doyle  vs.  Wisner,  42  Mich.  332; 
3  N.  W.  968;  Kaiser  vs.  Bank,  56  la.  104;  8  N.  W.  772. 

Five  required  by  law  to  sign  and  acknowledge,  but  only 
four  acknowledged  held  insufficient. 

People  vs.  Company,  97  Cal.  276;  32  Pac.  rep.  236. 

No  less  than  the  least  number  required  by  statute  to  form 
a  corporation  can  sign  and  acknowledge.  No  less  than  two 
in  Arizona. 

R.  S.  764,  sec.  4;  Doyle  vs.  Mezner,  42  Mich.  332; 
State  vs.  Cutchet,  37  Minn.  13;  32  N.  W.  787;  Kaiser 
vs.  Bank,  56  la.  104;  Hughs  vs.  Company,  34  Md.  316. 

Need  not  be  acknowledged  within  the  State  of  the  in- 
corporation. 

Humphrys  vs.  Mooney,  5  Colo.  282. 

Fourth,  "Articles"  must  be  recorded  "in  the  county  re- 
corder's office"  where  the  principal  place  of  business  is  to  be. 
in  Arizona  Territory.  This  serves  two  purposes — gives  notice 
as  other  instruments  and  satisfies  the  condition  precedent  of 
the  statutes. 

Hunt  vs.  Salisbury,  55  Mo.  310;  Bergeon  vs.  Hobbs, 
96  Wis.  641 ;  In  Re  Shokoppe  Mfg.  Co.  V.,37  Minn.  91  ; 
G.  M.  &  S.  Co.  vs.  Richards,  95  Mo.  106;  R.  S.  766,  sec. 
6;  Abbott  vs.  Smelting  Co.,  4  Neb.  416;  Kaiser  vs. 
Bank  supra. 

The  domicile  of  a  corporation  is  the  State  in  which  it 
was  formed. 

American  E.  Co.  vs.  Johnston,  60  Fed.  503 ;  Chaffer  vs. 
Bank,  71  Me.  514. 

The  "principal  place  of  business"  or  residence  is  where  the 
principal  office  is  located  in  the  county  in  the  State  of  its 
domicile. 

McSherry  vs.  Co.,  97  Cal.  637;  32  Pac.  711;  State  vs. 

Railway  Co.,  45  Wis.  580. 


70  INDUSTRIAL     CORPORATIONS 

The  Articles  of  Incorporation  may  be  forfeited  for  failure 
to  maintain  a  domicilary  office  or  place  of  business  in  the 
State  or  Territory  of  its  erection. 

State  vs.  Company,  24  Tex.  80 ;  N.  S.  R.  Co.  vs.  People, 
147  111.  234;  35  N.  E.  608;  State  vs.  Company,  58  Minn. 
330;  59  N.  W.  1048;  State  vs.  Summons  Company,  45 
Wis.  579;  Summons  vs.  Company,  (N.  C.)  18  S.  E.  117; 
State  vs.  Company,  59  Kan.  151  x;  52  Pac.  422. 

It  is  all  important  to  have  a  domicilary  office  in  the  State 
of  its  formation,  as  was  said  by  Justice  McAdams  in  Kruse 
vs.  Dusenbury,  19  Wk.  Di.  (N.  Y.)  201  :— 

"If  the  corporation  has  no  place  of  business  in  the  State 
where  it  was  incorporated,  it  does  not  affect  the  charter,  but 
it  can  not  have  branch  offices  elsewhere." 

Fifth,  "Articles"  must  contain  "the  name  of  the  corpora- 
tors, the  name  of  the  corporation,  and  its  principal  place  of 
transacting  business." 

R.  S.  766,  sec.  6,  sub.  1. 

(a)  "The  name  of  the  corporators"  this  language  presumes 
that  those  who  form  the  corporation,  as  the  owners  in  fact, 
shall  appear  in  the  articles  and  not  a  set  of  dummies,  nor 
even  those  who  sign  merely  for  convenience,  nor  those  who 
sign  to  hide  the  identity  of  the  real  owners  or  corporators,  as 
that  would  be  a  circumvention  rather  than  compliance  with 
the  true  spirit  of  the  requirement. 

(b)  Nameless  corporation  is  not  a  corporation  in  Arizona. 

"The  name  is  an  indispensable  part  of  the  constitution 
of  every  corporation,  the  knot  of  its  combination,  as  it  has 
been  called,  without  which  it  can  not  perform  its  corporate 
functions." 

Fort  Assn.  vs.  Model-Assn.,  159  Pa.  St.  308. 

Sixth,    "Articles"    must    contain    "its    principal    place    of 
transacting   business,"    indicating   clearly    that    the    principal 
place  of  transacting  business  is  a  distinct  locality  from  its 
"principal  place  of  business." 
R.  S.  766,  sec.  6,  Sub.  1. 


DRAFTING     THE     ARTICLES  71 

A  corporation  must  have  a  place  of  business  in  the  State 
of  its  domicile  in  order  to  have  a  place  for  transacting  busi- 
ness elsewhere  in  another  State. 

Kruse  vs.  Dusenbury,  19  Wk.  Di.  (N.  Y.)  201. 

Having-  a  place  of  business  in  the  State  of  its  domicile, 
it  is  proper  for  the  incorporators  to  contract  for  a  place  of 
"transacting"  business  in  another  State.  The  Supreme  Court 
of  the  United  States  said  on  this  point,  to  wit : — 

"As,  then,  a  corporation  can  have  no  legal  existence  out- 
side of  the  State  in  which  it  is  incorporated,  the  contract  of 
the  stockholders  with  one  another,  by  which  the  corporation 
is  created  is  presumed  to  have  been  made  with  reference  to 
the  laws  of  that  State,  nothing  being  said  in  the  charter  to 
the  contrary.  But  as  comity  permits  a  corporation  to  enter 
another  State  and  do  business  therein,  it  is  competent  for  the 
stockholders  in  making  their  charter  to  contract  with  refer- 
ence to  the  laws  of  a  State  in  which  they  propose  to  do  busi- 
ness." 

Pinney  Et  Al  vs.  Nelson,  22  Supreme  Court  Reporter 

52,  Reading  page  55. 

The  "principal  place  of  business"  or  office  and  the  prin- 
cipal place  of  "transacting"  business  are  not  one  and  the  same 
place.  It  may  have  a  principal  office,  or  place  of  business  in 
one  place  and  transact  the  major  part  of  its  business  in  an- 
other, in  the  same  or  in  an  adjoining  State.  Or  it  may  keep 
a  domicilary  office  in  one  State  and  "transact"  all  of  its  busi- 
ness in  another. 

McSherry  vs.  Company,  97  Cal.  637;  32  Pac.  711 ;  Ken- 
net  vs.  Company,  68  N.  H.  432 ;  39  atl.  585 ;  Meridith  vs. 
Company,  59  N.  J.  Eq.  257 ;  44  atl.  55 ;  Harris  vs.  Mc- 
Gregor, 29  Cal.  128  &  129;  Clegnor  vs.  Grange  Co.,  41 
la.  122. 

Another  purpose  of  stating  the  place  of  "transacting"  busi- 
ness is  for .  service  of  process.  Arizona  statute  uses  word 
"transacting,"  leaving  no  room  for  doubt.  It  must  be  in 
there.  Articles  of  Incorporation  are  defective  and  insufficient 
without. 


72  INDUSTRIAL     CORPORATIONS 

Seventh,  "Articles"  must  contain  "the  general  nature  of 
the  business  proposed  to  be  transacted." 
R.  S.  766,  sec.  6,  sub.  2. 

This  requirement,  upon  its  face  innocent  and  unpreten- 
tious, is  yet  the  most  difficult  and  profound. 

The  definite  article  "the"  points  out  and  particularizes  the 
particular  business  spoken  of  or  meant,  the  "general  nature" 
of  which  is  required  to  be  stated. 

Black's  Law  Dictionary  1168;  2  Binn  568;  25  Am.  and 
Eng.  Law  1019. 

We,  therefore,  have  the  general  nature  of  a  particular 
business  that'is  going  to  be  transacted,  that  is  required  to  be 
stated. 

It  is  at  once  seen  that  we  can  not  descend  and  state  the 
particular  nature  of  that  business,  because  the  law  requires 
"the  general  nature"  to  be  stated. 

We  can  not  descend  to  the  particular  transactions,  that 
we  expect  to  have  while  transacting  this  particular  business, 
as  that  would  be  referring  to  the  working  or  carrying  on  the 
particular  business,  the  "general  nature"  of  which  is  required 
to  be  stated. 

We  can  not  descend  to  the  mentioning  of  the  various 
products  to  be  handled  by  the  corporation,  as  that  would  be 
stating  the  name  of  the  materials  to  be  handled  in  the  par- 
ticular business,  the  general  nature  of  which  is  required  to  be 
stated. 

We  must  not  state  two  or  three  or  a  multiplicity  of  busi- 
nesses in  the  singular  form,  as  it  would  not  be  understood 
what  the  general  business  is.  It  might  be  either  or  neither, 
and  compliance  with  the  statute  would  not  be  made  out,  but 
avoided.  It  would  require  oral  evidence  to  show  what  busi- 
ness was  meant.  Conditions  precedent  can  not  be  supplied 
by  oral  proof  afterward. 

If  it  is  desired  to  cover  a  multiplicity  of  business,  the 
businesses  must  not  be  designated  particularly  but  generally 
in  the  general  form,  so  that  the  various  particular  lines  of 


DRAFTING     THE    ARTICLES  73 

businesses  may  be  transacted  under  one  general  head  or  be 
covered  by  a  statement  of  the  "general  nature"  of  the  one 
business. 

1.  Thus  "mining  in  all  its  branches,"  and  any  subsidiary 
business  essential  thereto,  will  cover  mining  for  the  metals 
of  any  character, — coal,  oil,  or  any  kind  or  class  of  mining 
whatsoever, — and   it   also   covers   carrying  out   the   business 
of  mining.    It  would  matter  not  what  kind  of  particular  busi- 
ness it  might  be  necessary  to  do,  the  corporation  would  have 
the  right  to  do  it  if  such  business  was  necessary  to  carry  out 
the  general  enterprise  engaged  in  of  mining. 

2.  Again,  the  general  nature  of  the  business  to  be  trans- 
acted or  engaged  in  is  agriculture  in  all  its  branches,  would 
cover  whatever  particular  form  of  agriculture  that  exists  or 
all  combined. 

3.  Again,  the  general  nature  of  the  business  in  which  the 
company  shall  engage  is  horticulture,  and  doing  all  things 
necessary  to  promote  the  horticultural  business. 

4.  Again,  the  general  nature  of  the  business  in  which  the 
company  shall  engage   is  common   carrier  of  persons,  agri- 
cultural and  mineral  products,  and  all  articles  of  commerce, 
by  land  or  sea,  would  cover  a  wide  scope. 

5.  Again,   the   general   nature   of   the   business   in   which 
the  corporation  shall  engage  is  manufacturing  in   all  of  its 
branches,  of  all  kinds  and  character  of  substances. 

This  statement  would  cover  the  manufacture  and  sale  of 
anything  manufacturable  out  of  any  known  substance. 

To  further  illustrate,  it  may  be  said  that  the  general  na- 
ture of  the  business  proposed  to  be  transacted  is  brocage 
general  and  special  in  all  of  its  branches. 

This  statement  covers  the  following  kind  and  character 
of  brokers:  Exchange,  insurance,  merchandise,  note,  pawn, 
real  estate,  ship,  stock,  and  all  other  kinds  or  character  of 
brokers. 

Again,  suppose  you  should  say,  The  general  nature  of  the 
business  proposed  to  be  transacted  is  that  of  an  exchange 


74  INDUSTRIAL     CORPORATIONS 

broker.  It  is  apparent  that  you  would  be  limited  in  your 
powers  in  the  Articles  of  Incorporation  to  the  business  of  an 
exchange  broker  only,  and  should  you  transact  business  as 
any  other  kind  of  a  broker,  your  acts  would  be  ultra  vires. 

Hence  to  secure  the  proper  powers  requires  the  statement 
made  by  a  lawyer  who  understands  the  legal  force  and  effect 
of  the  language  used  in  legal  contemplation,  in  the.  Articles 
of  Incorporation. 

The  powers  may  be  limited,  if  that  is  desired,  as  to  say : 
The  general  nature  of  the  business  in  which  this  company 
shall  engage  is  the  manufacture  and  sale  of  "edged  tools" 
or  farm  implements,  or  boots  and  shoes,  or  wines  and  spiri- 
tuous or  malt  liquors,  or  wizard  oil,  or  salt,  or  sugar,  or  what- 
ever particular  line  of  business  is  desired. 

6.  If  a  more  extended  power  of  business  is  desired,  it  may 
be  said:  The  general  nature  of  the  business  to  be  transacted, 
or  in  which  the  company  shall  engage,  is  mining,  agriculture, 
horticulture,  transportation,  manufacturing,  brocage,  factor, 
banking,  etc.,  etc.,  stating  generally  the  general  nature  of 
the  businesses  in  which  the  company  has  or  takes  the  right 
or  power  to  engage,  as  the  option  is  with  the  company  what 
scope  it  shall  cover,  and  thus  the  powers  of  the  business  in 
which  the  company  shall  engage  are  secured,  in  contradis- 
tinction to  the  powers  given  by  the  law,  such  as  the  right 
to  contract,  own  property,  etc. ;  in  other  words,  if  a  corporation 
secured  a  franchise  to  manufacture  "edged  tools,"  it  could  not 
mine  for  the  precious  metals  and  be  within  the  powers  of 
its  charter.  Its  every  act  in  mining  would  be  ultra  vires. 

Hence  it  is  of  the  utmost  importance  to  draft  the  Articles 
of  Incorporation  so  that  the  greatest  power  is  secured  in 
the  first  instance  for  the  transaction  of  the  corporate  business 
desired. 

As  was  said  by  the  Supreme  Court  of  the  United  States : — 

"The  charter  of  a  corporation  is  the  measure  of  its  powers, 
and  that  the  enumeration  of  these  powers  implies  the  ex- 
clusion of  all  others." 

Thomas  vs.  West  Jersey  R.  Co.,  101  U.  S.  71. 


DRAFTING    THE    ARTICLES 


75 


The  powers  of  the  charter  are  the  measure  of  its  value; 
the  greater  the  powers,  the  greater  its  value ;  the  smaller  the 
powers,  the  less  its  value.  However,  it  must  not  be  under- 
stood that  should  more  than  was  necessary,  or  particular, 
matter  be  stated,  that  it  would  invalidate  the  articles;  the 
court  would  treat  it  as  surplus  if  the  court  could  discover 
powers  secured  in  the  articles  sufficient  to  hold  the  charter 
good.  There,  however,  is  the  rub.  To  see  the  necessary 
statement  and  put  it  in  the  articles  is  where  the  skill  of  the 
lawyer  surpasses  that  of  all  his  laity  brethren ;  the  proper 
statement  must  be  made  before  a  legal  entity  can  be  created. 
The  general  nature  of  the  business  must  be  stated,  not  the 
particular  nature. 

The  powers  granted  by  the  law  and  the  powers  or  rights 
enumerated  in  the  articles  are  not  one  and  the  same,  and  must 
not  be  confused. 

The  one  is  its  inalienable  rights  and  the  other  is  the 
rights  it  secures  by  their  enumeration  in  the  Articles  of 
Incorporation. 

Hence,  in  complying  with  the  feature  of  the  laws  of  any 
State,  care  must  be  taken  to  secure  the  proper  powers  for  the 
corporation  under  its  law.  The  right  to  use  the  powers  se- 
cured by  the  articles  is  called  the  corporate  franchise ;  that 
is  what  the  State  grants,  the  right  to  transact  the  business, 
the  general  nature  of  which  is  stated  in  the  Articles  of  In- 
corporation. 

The  naming  of  contracts,  even  multiple,  the  repetition  of 
the  names  of  materials,  however  extended,  the  multiplica- 
tion of  transactions  in  property  of  whatever  character,  no 
matter  how  numerously  repeated,  are  all  only  an  enumeration 
of  the  powers  already  given  by  the  statute,  and  heretofore 
pointed  out  as  matter  that  must  be  left  out  of  the  articles, 
or  are  inalienable  rights  and  should  be  avoided  as  they  en- 
cumber the  articles,  entail  expense,  and  secure  nothing.  Ar- 
ticles of  Incorporation  with  nothing  but  such  last-named  mat- 
ter in  it  as  a  statement,  states  the  general  nature  of  no  busi- 


76  INDUSTRIAL     CORPORATIONS 

ness,  and  obtains  no  powers,  to  transact  any  business  what- 
ever. 

8.  "Articles"  must  contain,  "The  amount  of  capital  stock 
authorized,  and  the  time  when,  and  the  conditions  upon  which 
it  is  to  be  paid  in." 

R.  S.  766;  sec.  6,  sub.  3. 

"Capital  stock"  is  distinguished  from  "capital." 
The  former  is  amount  secured  or  paid  in,  and  always  re- 
mains  the   same;    the    latter   is   broader   term,    and    includes 
former  with  all  profits. 

Clark  on  Corporations,  256. 

9.  "Articles"  must  state  when  capital  stock  is  paid  in  as 
based  on  some  happening  certain  as  near  as  can  be,  as  when 
stock  is  issued. 

R.  S.  766,  sec.  6,  sub.  3  supra. 

10.  "Articles"  must  state  conditions  of  payment  of  capital 
stock. 

R.  S.  766,  sec.  6,  sub.  3  supra. 

Stock  may  be  paid  up  in  anything  of  value  which  is  con- 
clusive if  in  good  faith. 

Turner  et.  al.  vs.  Bailey  et.  al.,  42  Pac.  115. 

And  whether  in  good  faith  or  not,  would  they  not  be 
bound  to  any  transaction  to  which  they  agreed  and  became 
a  party? 

As  was  said  by  the  federal  court : — 

"Whatsoever  may  have  been  in  fact  the  value  of  the  prop- 
erty turned  over  to  the  company  for  its  stock,  the  latter  agreed 
to  take  it  for  the  stock.  The  persons  interested  were  the 
stockholders,  and  there  was  no  dissent  on  the  part  of  any 
person  concerned  in  what  was  thus  done.  Neither  any  person 
thus  holding  stock  nor  any  person  who  afterward  became  a 
stockholder  by  assignment  from  one  who  then  held  stock  can 
now  make  complaint  on  behalf  of  the  corporation  against  the 
lawfulness  of  that  transaction.  This  I  take  to  be  the  settled 
law  on  that  subject." 

Northern  Trust  Co.  vs.  75  Fed.  Cas.  936. 


DRAFTING    THE    ARTICLES  77 

How  far  creditors  are  bound  in  such  case,  see, — 

Schoville  vs.  Thayer,  105  U.  S.  143;  Paramlee  vs.  Price, 
208  111.  544;  Barr  vs.  Co.,  125  N.  Y.  236;  Handley  vs. 
Stutz,  139  U.  S.  417. 

11.  "Articles"  must  contain  commencement  and  termina- 
tion of  corporate  existence ;  can  not  make  longer  than  twenty- 
five  years,  but  may  take  power  by  articles  to  renew  perpet- 
ually.    Perpetual   existence  can  be  secured  if  the  option  is 
exercised   properly   in   the  Articles  of  Incorporation. 

R.  S.  766,  sec.  6,  sub.  4. 

12.  "Articles"  must  contain  what  officers  conduct  the  af- 
fairs and  "time"  when  elected  as  "board  of  directors." 

"By  what  officers  or  persons  the  affairs  of  the  corporation 
are  to  be  conducted  and  the  time  at  which  they  are  to  be 
elected." 

R.  S.  766,  sec.  6,  sub.  5 ;  Bates  vs.  Wilson,  24  Pac.  99. 

13.  "Articles"   must   contain   highest   indebtedness;   there 
is  no   limit.     This   section   repeals   old   section,   limiting   in- 
debtedness to  two-thirds  amount  of  capital  stock. 

"The  highest  amount  of  indebtedness  or  liability  to  which 
the  corporation  is  at  any  time  to  subject  itself." 

R.  S.  766,  sec.  6,  sub.  6;  Black  Interpretation  of  laws, 
112,  116,  359,  360. 

Incurring  indebtedness  higher  than  articles  state  does  not 
render  stockholders  personally  liable. 

Langan  vs.  Iowa  M.  Const.  Co.,  49  la.  317. 

14.  "Articles"    must    contain    statement    whether    private 
property  exempt,  if  it  is  desired  to  exempt  stockholders  from 
corporate  debts. 

"Whether  private  property  is  to  be  exempt  from  corporate 
debts.     Unless  so  exempted,  stockholders  are  liable  for  the 
debts  of  the  corporation  in  the  proportion  to  which  their  stock 
bears  to  the  whole  capital  stock." 
R.  S.  766,  sec.  6,  sub.  7. 


78  INDUSTRIAL     CORPORATIONS 

15.  Must  file  copy  Articles  of  Incorporation,  certified  to 
by  county  recorder,  with  auditor  Territory. 

R.  S.  767,  sec.  7 ;  Acts  1903,  No.  29,  p.  46,  sec.  1 ;  Abbott 
vs.  Smelting  Co.,  4  Neb.  416;  Kaiser  vs.  Bank,  56  Iowa 
104. 

The  omission  of  any  one  of  the  foregoing  conditions  prece- 
dent will  render  Articles  of  Incorporation  defective  and  en- 
tirely insufficient  under  the  laws  of  Arizona. 

§  lOOb.     Conditions  Subsequent. 

16.  A  condition  subsequent  is  something  to  be  performed 
in  the  future,  wherein  a  right  will  be  enlarged,  diminished, 
or  defeated. 

Articles  must  be  "published  at  least  six  times"  in  some 
newspaper  and  an  affidavit  filed  with  the  auditor,  stating  that 
such  publication  has  been  made  according  to  law. 
R.  S.,  par.  768,  sec.  8. 

This  section  is  to  be  taken  in  connection  with  the  statute 
that  follows  it,  which  shows  that  the  publication  is  not  a 
condition  precedent,  but  a  condition  subsequent,  affecting  the 
business  of  the  corporation  and  not  the  Articles  of  Incor- 
poration. 

R.  S.,  par.  769,  sec.  9. 

To  publish  is  an  act  by  which  a  thing  is  piaceu  before  the 
public  eye  by  printing  or  multiplied  copies  in  writing. 

92  Am.  Dec.  509. 

If  publication  of  articles  is  begun  within  three  months 
and  finished  afterward,  it  is  a  substantial  compliance  with  the 
statute. 

Thornton  vs.  Balcom,  85  la.  201. 

All  contracts  made  within  three  months  after  articles  are 
filed  are  valid  without  publication. 
Thornton  vs.  Balcom  supra. 

Publication  must  be  substantially  complied  where  it  af- 
fects the  articles,  else  it  will  furnish  grounds  for  action  to 
dissolve  the  corporation  by  the  State. 


DRAFTING    THE    ARTICLES  79 

Clcggs  vs.  Co.,  61  la.  121 ;  Biglow  vs.  Gregory,  73  111. 
197;  Field  vs.  Cook,  16  La.  Am.  153;  Hunt  vs.  Salsbury, 
55  Mo.  310;  Ind.  Min.  Co.  vs.  Herkiner,  46  Ind.  142; 
Holmes  vs.  Gilliland,  41  Barb.  568. 

The  power  to  dissolve  a  corporation  for  failure  to  publish 
articles  depends  on  whether  the  law  makes  publication  a  con- 
dition precedent  or  condition  subsequent. 

Under  the  laws  of  Arizona  publication  being  a  condition 
subsequent  purporting  to  validate,  as  it  were,  the  acts  or  con- 
tracts of  the  corporation,  it  is  extremely  doubtful  if  the  State 
would  interfere,  or  could  disturb  the  franchise  of  the  corpora- 
tion if  it  failed  entirely  to  publish  Articles  of  Incorporation, 
because  the  State  would  have  no  interest  in  the  fact  whether 
the  newspapers  received  a  fee  for  publication  or  not,  and  it 
would  hardly  be  expected  that  the  State  would  interfere  and 
mulct  itself  to  assist  a  newspaper  to  get  business ;  the  courts 
would  hardly  interfere,  because  if  the  corporation  transacted 
business  as  a  dc  facto  corporation,  its  contracts  would  be  valid 
between  the  parties,  and  both  parties  be  denied  the  right  to 
take  advantage  of  it  under  the  law  of  estoppel. 

A  creditor  would  have  no  interest  in  depriving  the  cor- 
poration of  its  franchise  in  order  to  hold  the  incorporation 
as  partners,  as  is  the  case  in  some  of  the  States. 

Davenport  N.  B.  vs.  Davis,  43  la.  424;  15  N.  W.  865. 

There  is  no  good  purpose  served  in  the  publication  of 
Articles  of  Incorporation  if  it  be  founded  on  the  reason  of 
publicity  of  the  corporation,  that  people  may  know  that  the 
concern  is  a  corporation  rather  than  a  partnership,  as  under 
the  laws  of  notice,  when  the  articles  are  recorded,  all  have 
the  regular  and  accepted  constructive  legal  notice,  that  all 
instruments  recorded  impart,  and  certainly  it  could  add  noth- 
thing  to  that  notice  that  some  little  newspaper  with  fifty  or 
more  circulation  publishes  the  article,  that  none  of  its  sub- 
scribers read. 

The  idea  that  publication  of  articles  gives  any  beneficial 
result  is  rapidly  on  the  decline,  as  now  only  ten  out  of  fifty 


80  INDUSTRIAL     CORPORATIONS 

States  and  Territories  of  the  Union  require  publication,  and 
all  but  one  of  them  are  west  of  the  Mississippi  River. 

The  reason  for  publication  is  gone;  the  State  gets  noth- 
ing out  of  it,  and  it  remains  a  newspaper  graft,  imposed  upon 
incorporators  by  over-generous  legislative  assemblies. 
§  101.     Presumption  of  Due  Incorporation. 

Parties  are  presumed  to  be  legally  incorporated  until  the 
contrary  is  shown  in  a  regular  proceeding  brought  for  the 
purpose. 

Rev.  Stat.  779,  sec.  19. 

This  regular  proceedings  must  be  brought  by  the  Ter- 
ritory. 

"No  corporation  formed  under  the  laws  of  this  Territory 
shall  be  dissolved,  or  its  rights  impaired,  except  by  judicial 
decree." 

Rev.  Stat.,  par.  28. 

Neither  the  corporation  nor  those  who  deal  with  it  are 
permitted  to  reply  on  the  want  of  legal  organization  as  a 
defense. 

Rev.  Stat.  780,  sec.  20. 
§  10 la.     Dissolution  of  Corporations. 

Corporations  may  also  be  dissolved  for  any  of  the  fol- 
lowing causes  or  grounds  in  court  by  proper  application  of 
the  proper  party  : — 

1.  Failure  to  appoint  an  agent  for  service  of  process. 

2.  Failure  to  file  a  written  notice  showing  that  the  appoint- 
ment has  been  made  with  the  auditor  of  the  Territory. 

3.  Or    revoke    appointment   of   agent   without    appointing 
another. 

4.  Or  by  majority  of  the  stock  outstanding  voting  to  dis- 
pose of  all  its  assets. 

5.  Or  majority  voting  that  the  corporation  be  dissolved. 

6.  Or  majority  voting  that  it  ceases  to  use  or  exercise  its 
corporate  franchise. 

7.  Or  when  the  directors  authorized,  by  majority  of  out- 
standing stock,  shall  have  disposed  of  the  corporate  assets. 


DRAFTING    THE    ARTICLES  81 

8.  Or  majority  dissolved  or  attempted  to  dissolve,  or  se- 
cure the  dissolution  of  the  corporation. 

9.  Or  majority  attempted  to  do  any  of  the  aforesaid  things. 
10.  Or  majority  disposed  of  all  its  assets. 

Session  Laws  1903,  p.  134. 

Many  of  the  features  of  this  law  are  scarcely  understand- 
able, for  that  to  dissolve  a  corporation  because  all  of  its  assets 
had  been  disposed  of,  or  to  dissolve  it  because  it  had  been  dis- 
solved, or  dissolve  it  because  it  had  ceased  to  use  its  franchise, 
and  was  dissolved  thereby  by  non-user,  and  many  other  there- 
after, is  certainly  beyond  the  fathom  of  an  ordinary  mortal, 
for  a  beneficial  result  to  any  one  and  a  mere  conglomeration 
of  nonsensical  requirements. 

Charter  lapse  for  non-user  for  five  years,  but  failure  to 
elect  officers  or  hold  meetings  is  not  such  non-user  as  will 
cause  lapse  of  charter  rights. 

R.  S.  772,  sec.  12;  State  vs.  Simonton,  78  N.  C.  57; 
State  vs.  Barren,  58  N.  H.  370 ;  W.  C.  M.  Co.  vs.  Burns, 
114  N.  C.  363;  State  vs.  Co.,  58  Minn.  330;  59  N.  W. 
1048;  State  vs.  Co.,  59  Kan.  151 ;  52  Pac.  422;  State  vs. 
Co.,  45  Wis.  579;  W.  &  Etc.  Co.  vs.  Kit,  4  Saw.  44; 
People  vs.  Bank,  129  111.  618. 

§  lOlb.     Forfeiture  of  "Articles"  for  Other  Causes. 

At  common  law  corporations  were  dissolved  by  applica- 
tion to  the  court  by  the  proper  officials  of  the  commonwealth 
by  extraordinary  writ  of  quo  warranto. 

"For  the  Commonwealth  may  waive  any  provision  of  any 
condition,  express  or  implied,  on  which  the  corporation  was 
created ;  and  courts  can  not  give  judgment  for  the  seizure 
by  the  Commonwealth  of  the  franchise  of  any  corporation 
unless  the  Commonwealth  be  made  a  party  in  interest  to  the 
suit  and  assent  to  the  judgment." 

Commonwealth  vs.  Co.,  5  Mass.  230. 

The  State  may  waive  conditions  imposed  upon  formation 
of  corporations. 

Matter  of  Brooklyn  Elevated  Railway  Co.,  125  N.  Y. 
434;  526  N.  E.  474. 
7 


82  INDUSTRIAL     CORPORATIONS 

The  courts  have  no  inherent  power  to  declare  a  forfeiture 
of  the  charter  of  a  corporation  on  any  grounds. 

Denicke  vs.  Co.,  80  N.  Y.  559;  Wheeler  vs.  Co.,  143  111. 
197. 

Courts  will  not  dissolve  a  corporation  except  upon  "solid, 
weighty,  and  cogent  reasons  for  violation  of  a  prohibitory 
statute." 

Moore  vs.  State,  71  Ind.  478;  State  vs.  Bank,  10  Oh. 

St.  535. 

"Before  court  will  dissolve  must  be  something  more  than 
accidental  negligence,  .  .  .  excess  of  power,  mistake  in 
executing  powers  not  wilfully  done,"  or  some  other  matter 
not  of  a  substantial  nature  not  tending  to  produce  evil  con- 
sequences. 

State  vs.  Co.,  8  R.  I.  182. 

"State  does  not  concern  itself  with  quarrels  of  private  in- 
dividuals," but  when  the  welfare  of  the  people  is  threatened, 
-  State  will  interfere. 

People  vs.  Co.,  121  N.  Y.  582;  24  N.  E.  834;  20  Ark. 

443. 
§  10  Ic.     General  Rule  Equity  to  Dissolve. 

"The  general  rule  as  laid  down  by  text  writers  is  that  the 
general  jurisdiction  of  equity  over  corporations  does  not  extend 
to  the  power  of  dissolution  of  the  corporation  or  to  the  wind- 
ing up  of  its  affairs,  sequestrating  the  corporate  property  and 
effects ;  and  in  that  connection  appointing  a  receiver,  unless 
such  jurisdiction  is  expressly  conferred  by  statute." 

Beach  Mod.  Eq.  Juris,  sec.  967;  1  Cook,  Stock,  Stockh. 

and  Corp.  Laws,  sec.  629;  Arents  vs.  Blackburn  Dur- 

hamTobacco  Co.,  101  Fed.  338;  Reason  of  rule  stated 

in  Silver  Mines  vs.  Brown,  19  U.  S.  App.  209;  7  C.  A. 

415 ;  58  Fed.  647 ;  2  L.  R.  A.  778. 

While  this  is  recognized  as  the  general  rule,  yet  it  is  also 
said  by  the  same  court  that  equity  "will  always  grant  equita- 
ble relief  against  such  a  corporation  whenever  a  sufficient 
case  for  relief  is  shown  upon  the  ordinary  principles  of  equity 
jurisprudence." 

"A  recognized  ground  of  relief  in  equity  is  when  the  affairs 


DRAFTING    THE    ARTICLES  83 

of  the  corporation  are  not  satisfactory,  when  it  is  in  the  midst 
or  is  threatened  with  disaster,  when  further  prosecution  of  its 
business  will  lead  to  loss  and  insolvency." 

Hayden    vs.    Directory    Co.,   42   Fed.   875;   Arents   vs. 

Blackburn  Durham  Tobacco  Co.,  101  Fed.  338. 

It  is  said  equity  has  jurisdiction  to  wind  up  corporations 
and  to  appoint  a  receiver  therefor  for  abuse  of  trust,  mis- 
appropriation of  funds,  and  grant  restitution. 

Miner  vs.  Bell  Isles  Ice  Co.,  93  Mich.  97. 
§  lOld.     Liability  of  Stockholders. 

Stockholders  are  liable  for  the  unpaid  installment  of  the 
purchase  of  stock,  or  for  unpaid  stock  transferred  to  them  to 
defraud  creditors. 

R.  S.  776,  sec.  16. 

Corporation  may  provide  sinking  fund  and  loan  same  on 
security. 

R.  S.  777,  sec.  17. 

§  10 le.     Interpretation  of  Charters  or  Articles  of  Incorpora- 
tion. 

Confusion  often  arises  respecting  the  rules  by  which  a 
charter  or  Articles  of  Incorporation  are  to  be  interpreted. 
It  being  held  that  a  charter  is  a  legislative  contract,  where 
it  was  granted  by  special  enactment,  much  more  would  it  be 
a  contract  where  the  articles  were  obtained  under  general 
incorporating  acts  by  compliance  with  their  terms  by  written 
articles  signed,  acknowledged,  and  filed. 

Having  been  held  to  be  a  threefold  contract,  its  interpre- 
tation would  come  within  the  scope  of  the  ordinary_con- 
tract.  See  post. 

Respecting  the  interpretation  of  a  contract  of  this  char- 
acter, the  Supreme  Court  of  the  United  States  furnishes  the 
rule  ;  to  wit : — 

"A  great  deal  of  argument  at  the  bar  was  devoted  to  the 
consideration  of  the  proper  rules  of  construction  to  be  adopted 
in  the  interpretation  of  legislative  contracts.  In  this  there  is 
no  difficulty.  All  contracts  are  to  be  construed  to  accomplish 
the  intention  of  the  parties;  and  in  determining  their  different 


84  INDUSTRIAL     CORPORATIONS 

provisions,  a  liberal  and  fair  construction  will  be  given  to 
the  words,  either  singly  or  in  connection  with  the  subject  mat- 
ter. It  is  not  the  duty  of  a  court,  by  legal  subtlety,  to  over- 
throw a  contract,  but  rather  to  uphold  it  and  give  it  effect; 
and  no  strained  or  artificial  rule  of  construction  is  to  be  ap- 
plied to  any  part  of  it.  If  there  is  no  ambiguity  and  the 
meaning  of  the  parties  can  be  clearly  ascertained,  effect  is 
to  be  given  to  the  instrument  used,  whether  it  is  a  legislative 
grant  or  not.  In  the  case  of  the  Charles  River  Bridge  (11 
Pet.  544),  the  rules  of  construction  known  to  the  English 
common  law  were  adopted  and  applied  in  the  interpretation 
of  legislative  grants,  and  the  principle  was  recognized  that 
charters  are  to  be  constructed  most  favorably  to  the  State, 
and  that  in  grants  by  the  public  nothing  passes  by  implication. 
This  court  has  repeatedly  since  re-asserted  the  same  doctrine, 
and  the  decisions  in  the  several  States  are  nearly  all  the  same 
way.  The  principle  is  this :  That  all  rights  which  are  as- 
serted against  the  State  must  be  clearly  defined,  not  raised 
by  inference  or  presumption,  and  if  the  charter  is  silent  about 
a  power,  it  does  not  exist.  If,  on  a  fair  reading  of  the  in- 
strument, reasonable  doubt  arises  as  to  the  proper  interpre- 
tation to  be  given  to  it,  those  doubts  are  to  be  solved  in  favor 
of  the  State;  and  where  it  is  susceptible  to  two  meanings, 
the  one  restricting  and  the  other  extending  the  powers  of 
the  corporation,  that  construction  is  to  be  adopted  which 
works  the  least  harm  to  the  State.  But  if  there  is  no  am- 
biguity in  the  charter,  and  the  powers  conferred  are.  plainly 
marked,  and  their  limit  can  be  readily  ascertained,  then  it  is 
the  duty  of  the  court  to  sustain  and  uphold  it,  and  to  carry 
out  the  true  meaning  and  intention  of  the  parties  to  it.  Any 
other  rule  of  construction  would  defeat  all  legislative  grants 
and  overthrow  all  other  contracts." 

Black  Intcrpt.  Laws  319   320;  The  Bingham  Bridge,  3 

Wall  51-74. 

Other  illustrations  of  charters  construed  by  U.  S.  Court 
and  State  courts. 

Or.  Ry.  Co.  vs.  Or.  Ry.  Co.,  130  U.  S.  1 ;  9  s.  ct.  409; 
Union  Nat.  Bank  vs.  Mathews,  98  U.  S.  621 ;  S.  L.  vs.  T. 
Co.,  157  111.  641 ;  42  N.  E.  153;  Piker  vs.  Leo,  133  N.  Y. 
519-30;  N.  E.  598;  Bridge  Co.  vs.  Ferry  Co.,  29  Conn. 
221 ;  Nat.  Bank  vs.  Co.,  41  Oh.  St.  1 ;  Wheeler  vs.  Co., 
45  Pac.  316;  14  Wash.  630;  Black  vs.  Co.,  22  N.  J.  Eq. 
130. 


CORPORATE     STATUS  85 

CHAPTER   VII. 

CORPORATE  STATUS. 

§  102.     Corporate  Status,  When  a  Territory  Becomes  a  State. 

The  status  of  a  corporation  formed  under  the  laws  of  a 
Territory  after  that  Territory  becomes  a  State  depends  on  the 
acts  of  Congress  as  laid  down  in  the  organic  act  of  the  Ter- 
ritory, or  statutes  passed  by  Congress  for  the  regulation  of 
the  Territory. 

Under  the  act  of  Congress  or  its  organic  act  for  the  Ter- 
ritory of  Arizona,  a  corporation  has  a  quasi  national  sanction 
or  status,  because  Congress  has  authorized  the  passage  of 
corporate  laws  or  general  incorporating  act  by  the  Legisla- 
ture of  Arizona  Territory  and  is  bound  thereby. 

The  United  States  statute  or  organic  act  on  this  point  is 
as  follows : — 

"The  legislative  assemblies  of  the  several  Territories  shall 
not  grant  private  charters  or  special  privileges,  but  they  may, 
by  general  incorporation  acts,  permit  persons  to  associate 
themselves  together  as  bodies  corporate  for  mining,  manufac- 
turing, and  other  industrial  pursuits,  and  for  conducting  the 
business  of  insurance,  banks  of  discount  and  deposit  (but  not 
of  issue),  loan,  trust,  and  guarantee  associates,  and  for  the 
construction  or  operation  of  railroads,  wagon  roads,  irrigating 
ditches,  and  the  colonization  and  improvement  of  land  in  con- 
nection therewith,  or  for  colleges,  seminaries,  churches,  li- 
braries, or  any  other  benevolent,  charitable,  or  scientific  as- 
sociation." 

Sec.  1889,  as  amended  by  I.  Supp.  R.  S.  U.  S.,  p.  504, 
being  sec.  of  chap.  818,  49th  Cong.,  1st  Sess.,  July  30, 
1886. 

The  Territorial  Legislature  having  the  power  to  pass 
general  incorporation  laws,  has  passed  such  law  by  leave 
and  by  virtue  and  by  sanction  of  congressional  authority.  It 
follows,"  therefore,  that  when  a  corporation  is  formed  under 


86  INDUSTRIAL     CORPORATIONS 

the  laws  of  Arizona,  it  becomes  a  legislative  contract  between 
the  incorporators  and  the  Territory  of  Arizona,  sanctioned 
and  authorized  by  the  laws  of  the  Congress  of  the  United 
States,  and  its  franchise  becomes  a  valuable  property  right 
vested  in  the  incorporators  by  reason  of  such  authority,  and 
protected  by  the  very  authority,  the  laws  of  the  Congress, 
from  whence  it  came. 

As  was  said  by  the  Supreme  Court  of  the  United  States : — 

"The  right  and  privilege,  or  franchise,  as  it  may  be  termed, 
of  being  a  corporation  is  of  great  value  to  its  members,  and 
is  considered  as  property,  separate  and  distinct  from  the 
property  which  the  corporation  itself  may  acquire." 

Horn  Silver  Mining  Co.  vs.  State  of  N.  Y.,  143  U.  S. 

305. 

§102a.     Vested  Property  Right. 

This  vested  property,  protected  as  it  is  not  only  by  the 
acts  of  the  Legislature,  but  by  the  laws  of  Congress  as  well, 
becomes  such  a  property  as  can  not  be  invaded  by  the  Con- 
gress of  the  United  States,  because  under  article  5  of  the 
amendments  of  the  Constitution  of  the  United  States  it  is 
said : — 

"No  person  .  .  .  shall  ...  be  deprived  of  life,  lib- 
erty, or  property  without  due  process  of  law." 

See  Articles  in  addition  to,  and  Amendment  of,  the 
Constitution  of  the  United  States,  Article  V. 

§  102b.     Equal  Protection  of  the  Law. 

A  corporation  is  a  "person"  under  the  fourteenth  amend- 
ment of  the  Constitution  that  can  not  be  denied  the  equal 
protection  of  the  law. 

Pembina  etc.  Min.  Co.  vs.  Penn.,  125  U.  S.  180;  Santa 
Clara  Co.  vs.  S.  P.  Ry.  Co.,  118  U.  S.  394;  24  Am.  and 
Eng.  Ry.  Cases,  523 ;  Minneapolis  etc.  Ry.  Co.  vs.  Beck- 
with,  129  U.  S.  26. 

The  equal  protection  of  the  law  certainly  could  mean 
nothing  else  than  the  protection  under  the  law  and  the  Con- 
stitution from  every  source.  Certainly  it  could  mean  no  less 


CORPORATE     STATUS  87 

than  that  a  right  granted  by  the  Congress  or  a  property  right 
emanating  from  the  Congress  as  its  source  would  be  pro- 
tected by  the  safeguards  furnished  by  the  Constitution  with 
equal  force  as  any  other  right  emanating  from  the  Congress. 

A  corporate  franchise  being  a  property  right,  and  by  the 
Articles  of  Incorporation  becomes  vested  in  the  incorpora- 
tors,  becomes  a  vested  property  right  which  can  not  be  taken 
or  removed  except  by  due  process  of  law  or  by  just  compen- 
sation. These  express  constitutional  inhibitions  are  binding 
not  only  upon  individuals  and  the  Legislature,  but  ipso  facto 
upon  the  Congress  of  the  United  States  as  well. 

Congress  exists  by  reason  of  the  Constitution  and  by  virtue 
of  its  power  above  which  it  can  not  rise,  neither  can  Congress 
its  provisions  abridge  or  deny. 

§  102c.     Due  Process  of  Law. 

Under  Article  Five  of  Amendments,  the  franchise  of  a 
corporation  is  a  property  right,  the  removal  or  destruction 
of  which  is  not  left  to  Congress,  but  to  the  courts  by  "due 
process  of  law." 

"Due  process  of  law  in  each  particular  case  means  such  an 
exercise  of  the  powers  of  the  government  as  the  settled 
maxims  of  law  permit  and  sanction,  and  under  such  safeguards 
for  the  protection  of  individual  rights  as  those  maxims  pre- 
scribe for  the  class  of  cases  to  which  the  one  in  question 
belongs." 

3  Story  Const.  264-661 ;  Cooley  Const.  Lim.  441 ;  12  N. 

Y.  209;  5  Mich.  251 ;  6  Cold  233 ;  49  Cal.  403. 

Speaking  of  "due  process  of  law,"  the  Supreme  Court  of 
the  United  States  says: — 

"Whatever  difficulty  may  be  experienced  in  giving  to  these 
terms  a  definition  which  will  embrace  every  permissible  exer- 
tion of  power  affecting  private  rights,  and  exclude  such  as 
is  forbidden,  there  can  be  no  doubt  of  their  meaning  when 
applied  to  judicial  proceedings.  They  mean  a  course  of  legal 
proceedings  according  to  whose  rules  and  principles  which 
have  been  established  in  our  systems  of  jurisprudence  for 
the  enforcement  and  protection  of  private  rights,  to  give  such 
proceedings  any  validity,  there  must  be  a  tribunal  competent 


88  INDUSTRIAL     CORPORATIONS 

by  its  Constitution  ;  that  is,  by  the  law  of  its  creation  to  pass 
upon  the  subject-matter  of  the  suit;  and  that  involves  merely 
a  determination  of  the  personal  liability  of  the  defendant;  he 
must  be  brought  within  its  jurisdiction  by  service  of  process 
within  the  State,  or  his  voluntary  appearance." 
95  U.  S.  733;  55  Ala.  599;  55  Miss.  468. 

"Due  process  of  law"  as  used  in  the  Constitution  can 
not  mean  less  than  a  prosecution  or  suit  instituted  and  con- 
ducted according  to  the  prescribed  forms  and  solemnities  for 
ascertaining  guilt  or  determining  the  title  to  property. 

3  N.  Y.  511-517;  Tayer  vs.  Porter,  4  Hill  140;  10  N.  Y. 

374-397. 

Due  process  of  law  must  mean  at  all  events  according  to 
the  settled  judicial  procedure  of  the  country.  Certainly 
Congress  has  not  up  to  this  time  attempted  to  remove  a  pri- 
vate right  of  property  by  any  enactment,  nor  is  it  supposable 
hardly  that  it  ever  will,  a  fortiori,  will  it  ever  where  that  right 
has  been  granted  by  Congress,  such  as  the  sanction  or  au- 
thorizing of  the  granting  of  franchises  of  corporations  by  a 
territorial  Legislature. 

Am.  and  Eng.  Ency:  Law,  vol.  6,  p.  43. 

§  102d.     State  Inhibited. 

The  State  is  inhibited  by  the  Constitution  from  interfer- 
ing with  corporate  existence  by  reason  of  Sec.  10,  Art.  1  of 
the  Constitution,  which  says:  "No  State  shall  .  .  .  pass 
any  .  .  .  law  impairing  the  obligation  of  contracts." 

§  102e.     Franchise  Right  Can  Not  Be  Sold. 

A  corporate  franchise  is  a  property  right  that  can  not 
be  sold  by  the  corporation  ;  it  is  said  by  the  Supreme  Court 
of  Massachusetts,  in  Commonwealth  vs.  Smith,  10  Allen  448: — 

"The  franchise  to  be  a  corporation  clearly  can  not  be  trans- 
ferred by  any  corporate  body  of  its  own  will.  Such  a  fran- 
chise is  not  in  its  own  nature  transmissible,  .  .  .  and  al- 
though the  franchise  to  exist  as  a  corporation  is  distinguish- 
able from  the  franchise  to  be  enjoyed  and  used  by  the  corpora- 
tion after  its  creation,  yet  the  transfer  of  the  latter  differs 


CORPORATE     STATUS  89 

essentially   from   the   mere   alienation   of   ordinary    corporate 
property." 

Thomas  vs.  Railroad  Co.,  101  U.  S.  71 ;  Central  Trans. 

P.  Co.  vs.  Pullman  P.  Car  Co.,  139;  U.  S.  24;  St.  Louis 

etc.  R.  Co.  vs.  Terre  Haute  etc.  R.  Co.,  145  U.  S.  393; 

Clark  on  Corporations,  144,  145  Cases. 

It  is  therefore  seen  that  a  corporation,  formed  under  the 
laws  of  Arizona,  possesses  a  corporate  franchise  deemed  by 
the  highest  court  in  the  land  to  be  a  valuable  right  to  its 
members,  a  vested  right  protected  by  the  Constitution  from 
the  invasion  of  Congress  and  the  State,  as  well  as  having 
its  essential  and  original  existence  from  and  by  authority  of 
the  Congress  of  the  United  States.  How  could  a  better 
foundation  be  laid  to  erect  the  right  to  endure? 


90  INDUSTRIAL     CORPORATIONS 

CHAPTER    VIII. 

ARTICLES  OF  INCORPORATION  A  CONTRACT. 

§  102f.     Threefold  Contract. 

In  order  to  form  a  private  corporation  under  general  in- 
corporation acts,  it  must  be  understood  that  the  charter  or 
Articles  of  Incorporation  is  a  contract,  and  to  create  a  cor- 
poration is  to  enter  into  a  contract,  the  analysis  of  which 
contract  reveals  threefold  elements  or  three  distinct  contracts 
in  one ;  to  wit : — 

1.  It  is  a  contract  between  the  corporation  and  the  State. 

2.  It  is  a  contract  between  the  stockholders  and  the  State. 

3.  It  is  a  contract  between  the  corporation  and  the  stock- 
holders. 

These  distinct  parts  of  the  charter  do  not  encompass  the 
contract  between  the  members  of  the  company  to  incorporate, 
entered  into  prior  to  incorporation,  but  is  the  result  of  it. 

§  103.     Charter  a  Contract  between  Corporation  and  State. 

1.  As  a  contract  between  the  State  and  corporation,  the 

charter  is  protected  by  that  provision  of  the  Constitution  of 

the  United  States  which  reads  that, — "no  State  shall     .     .     . 

pass  any     .     .     .     law  impairing  the  obligation  of  contracts." 

Constitution  of  the  United  States,  Art.  I,  Sec.  10. 

This  principle  was  first  applied  to  corporations  in  the 
Dartmouth  College  case  v-s.  Woodward,  4  Wheat  518,  where 
Chief  Justice  Marshall  said : — 

"We  are  also  satisfied  that  the  rights  legally  vested  in  this 
or  in  any  corporation  can  not  be  controlled  or  destroyed  by 
any  subsequent  statute,  unless  a  power  for  that  purpose  be 
reserved  to  the  Legislature  in  the  act  of  incorporation." 

In  Pearsall  vs.  Great  Northern  Ry.,  161  U.  S.  646,  the 
United  States  Supreme  Court,  through  Justice  Brown,  speak- 
ing at  great  length  of  the  doctrine  that  the  State  has  no  right 


ARTICLES    OF    INCORPORATION     A    CONTRACT  91 

to  pass  laws  impairing  the  obligations  of  a  charter  contract 
between  the  stockholders  and  the  State,  said: — 

"The  doctrine  of  this  case  has  been  subjected  to  more  or 
less  criticism  by  the  courts  and  the  profession,  but  has  been 
re-affirmed  and  applied  so  often  as  to  have  become  firmly 
established  as  a  canon  of  American  jurisprudence." 

It  is,  therefore,  beyond  the  power  of  the  State  to  repeal 
or  impair  the  charter  of  corporation  unless  such  power  was 
expressly  reserved  by  legislative  enactment  at  the  time  the 
charter  was  granted  or  accepted. 

Cook  on  Corporation,  vol.  2,  par.  494,  p.  891 ;  State  Bank 

vs.  Knoop,  16  How.  369. 

§  104.     The  Charter  or  Articles  a  Contract  between  the  Stock- 
holders and  State. 

2.  As  a  contract  between  the  stockholders,  or  corporators, 
and  the  State,  the  charter  or  articles  are  a  binding  contract, 
also  protected  by  the  same  provision  of  the  United  States 
Constitution. 

Const,  of  U.  S.,  Art.  1,  Sec.  10. 

"A  charter  of  incorporation  granted  by  a  State  creates  a 
contract*  between  the  State  and  the  corporators,  which  the 
State  can  not  violate." 

Wilmington  R.  R.  vs.  Reid,  13  Wall  264. 

"It  has  been  the  settled  law  of  this  court  since  the  decision 
in  the  Dartmouth  College  case." 

Delaware  R.  R.  Tax,  18  Wall  206;  Sinking  Fund  Cases, 
99  U.  S.  700. 

"That  an  act  of  incorporation  is  a  contract  between  the  State 
and  the  stockholders  is  held  for  settled  law  by  the  federal 
courts  and  by  every  State  court  in  the  Union.  All  the  cases 
on  the  subject  are  saturated  with  this  -doctrine.  It  is  sus- 
tained not  by  a  current,  but  by  a  torrent  of  authorities.  No 
judge  who  has  a  decent  respect  for  the  principle  of  stare  decisis 
—that  great  principle  which  is  the  sheet-anchor  of  our  juris- 
prudence— can  deny  that  it  is  immovably  established. 

"If  anything  is  settled,  it  is  this  rule  of  construction  that 
a  corporation  takes  nothing  by  its  charter  except  what  is 
plainly,  expressly,  and  unequivocally  granted." 

Pennsylvania  vs.  Commonwealth,  19.  Pa.  St.  144. 


92  INDUSTRIAL     CORPORATIONS 

§  105.     The  Charter  or  Articles  a  Contract  between  the  Cor- 
poration and  Stockholders. 

3.  As  a  contract  between  the  corporation  and  the  stock- 
holders, the  charter  is  a  limitation  on  the  extent  of  corporate 
business  or  the  scope  of  its  operation.  Any  attempt  on  the 
part  of  the  corporation  to  transact  business  not  designated, 
or  abandon  the  business  designated  by  the  articles,  would 
be  without  the  scope  of  its  charter  power  and  beyond  its  pur- 
pose or  object ;  such  an  act  is  termed  an  ultra  vires  act. 

Any  stockholder  may  object  to  such  an  act  and  stop  it,  if 
he  choose. 

Livingston  vs.  Lynch,  4  Johns,  ch.  573. 

His  remedy  would  be  to  enjoin  the  act  before  it  was  done, 
if  he  knew  it  was  going  to  be  done,  or  by  bill  in  equity  to  set 
aside  if  the  act  had  already  been  done  before  he  discovered  it. 
Cook  on  Corporation,  vol.  2,  par.  669,  p.  1336. 

"A  stockholder  may  file  a  bill  to  enjoin  or  set  aside  an  ultra 
vires  act,  even  though  every  other  stockholder  is  opposed  to 
him." 

Hoole  vs.  Great  Western  Ry.,  L.  R.  3  Ch.  App.  262; 

Beeman  vs.  Rufford,  1  Sim.  N.  S.  550. 

A  majority  of  the  stockholders  can  not  ratify  an  ultra  vires 
act. 

Bagshaw  vs.  Eastern  Union  Ry.,  19  L.  J.  (Ch.)  410: 
Hare  vs.  London  etc.  Ry.,  30  L.  J.  (Ch.)  817,  829; 
Winch  vs.  Birkenhead,  etc.  Ry.,  16  Jur.  1035. 

A  stockholder  in  a  trust  company  may  file  a  bill  in  equity 
to  enjoin  the  company  from  paying  an  illegal  income  tax  to 
the  federal  government. 

Pollock  vs.  Farmers'  L.  &  T.  Co.,  157  U.  S.  429. 

The  courts,  however,  are  leaning  toward  a  limitation 
of  the  application  of  the  rule  of  ultra  vires,  and  where  the  act 
is  entirely  consummated  and  there  is  no  fraud,  the  courts 
would  be  very  reluctant  to  overturn  the  transaction,  even  if 
it  were  without  the  scope  of  the  corporate  powers.  And  they 
would  not  overturn  it  if  it  would  work  an  injury  to  the  other 
contracting  party,  and  in  favor  of  the  corporation. 


ARTICLES    OF    INCORPORATION     A    CONTRACT  93 

For  instance,  in  Salt  Lake  City  vs.  Hollister,  118  U.  S. 
256,  Mr.  Justice  Miller  said: — 

"The  truth  is,  that,  with  the  great  increase  in  corporations  in 
very  recent  times,  and  in  their  extension  to  nearly  all  the 
business  transactions  of  life,  it  has  been  found  necessary  to 
hold  them  responsible  for  acts  not  strictly  within  their  cor- 
porate powers,  but  done  in  their  corporate  name,  and  by 
corporation  officers  who  were  competent  to  exercise  all  the 
corporate  powers." 

§  106.     Who  May  Object  to  Ultra  Vires  Acts. 

At  common  law  ultra  vires  acts  could  be  objected  to, — 

1.  By  the  State. 

2.  By  the  stockholders. 

3.  By  the  corporation. 

4.  By  the  other  contracting  party. 

Cook  on  Corporations,  vol.  2,  par.  668,  p.  1335. 
§  107.     Contract  to  Create  Corporation. 

The  right  to  enter  into  a  contract  to  form  a  corporation  is 
a  right  belonging  to  individuals,  and  may  be  entered  into 
wherever  the  contracting  parties  may  be.  The  members,  be- 
fore they  take  steps  to  incorporate,  must  come  to  some  kind 
of  an  understanding  about  what  each  and  every  one  is  going 
to  do  and  how  he  is  going  to  do  it.  Whether  this  under- 
standing is  reduced  to  writing  or  remains  a  mere  verbal  un- 
derstanding, it  forms  the  basis  or  structure  upon  which  the 
corporate  contract  is  finally  built. 

1  Mor.  Priv.  Corp.,  sec  24;  Louman  vs.  Railway  Co., 

30  Pa.  St.  42. 

And  whether  this  initiatory  contract  be  merged  in  the 
charter  and  lost  sight  of  or  not,  it-  nevertheless  must  happen 
before  the  formation  of  the  triple  corporate  contract  rela- 
tion above  pointed  out. 

§  108.     Conditions  Precedent  in  Creating  a  Corporation. 

The  various  legislative  enactments  of  the  States  are  clear 
and  explicit  relative  to  the  proceedings  by  and  through  which 
a  corporation  may  be  created.  Usually  a  number  of  things 


94  INDUSTRIAL     CORPORATIONS 

are  to  be  performed  prior  to,  as  well  as  certain  specific  state- 
ments must  be  set  forth  and  declared  in  the  charter  or  articles 
without  which  conditions  precedent  no  legal  corporation  can 
be  created,  some  of  which  have  heretofore  been  pointed  out 
and  applied. 

To  illustrate:  It  was  a  condition  precedent  for  the  com- 
mon council  of  a  city  to  declare  by  resolution  that  it  was 
expedient  for  the  city  to  have  water-works  constructed,  but 
inexpedient  for  the  city  to  construct  such  water-works,  then 
it  should  be  lawful  for  private  persons  to  construct  such 
works.  Without  such  a  resolution,  parties  sought  to  con- 
struct and  operate  a  water-works.  Held,  such  a  resolution 
was  a  condition  precedent  to  the  legal  existence  of  the  cor- 
poration. 

Atty.  Gen.  vs.  Houchett,  42  Mich.  436;  4  N.  W.  182. 

So  held  where  a  less  number  sought  to  incorporate  than 
stated  by  statute. 

Montgomery  vs.  Forbes,  148  Mass.  249;  19  N.  E.  342; 
and  1  Gumming,  Gas.  Priv.  Corp.  69;  State  vs.  Crit- 
chett,  37  Minn.  13;  32  N.  W.  787;  Broderip  vs.  Salo- 
mon 2  Ch.  323. 

So  held  where  the  statute  required  written  articles  of 
agreement  between  the  in  corporators. 

Utley  vs.  Tool  Co.,  11  Gray  (Mass.)  139;  Unity  Ins. 
Co.  vs.  Cram,  43  N.  H.  636. 

Where  the  statute  requires  written  articles  of  association, 
such  paper  must  be  executed  as  any  other  contract  to  be 
valid,  as  has  been  said : — 

"It  is  obvious  that  the -three  or  more  persons  must  sign 
and  execute  these  articles  in  such  a  manner  as  to  come  within 
the  well-established  rules  of  law  prescribing  the  elements  nec- 
essary to  constitute  a  signing  or  execution  which  will  make 
the  paper  executed  the  legal  and  binding  instrument  of  the 
person  who  executes  it.  Their  signatures  must  be  procured, 
without  fault  on  their  part  by  fraud ;  nor  must  they  be  affixed 
with  the  understanding  and  upon  condition  that  the  paper  is 
not  to  take  legal  effect,  and  be  valid  and  binding,  either  pres- 


ARTICLES    OF    INCORPORATION    A    CONTRACT  95 

cntly,  or  at  some  fixed  and  definite  time,  or  upon  the  happen- 
ing of  some  contingency  or  fulfilment  of  some  condition 
within  the  bounds  of  possibility.  Nor  is  it  obvious  how  such 
an  instrument  as  this,  more  than  any  other,  can  have  life  and 
binding  force  if  executed  only  to  take  effect  upon  the  happen- 
ing of  some  event,  unless  it  is  shown  that  the  event  has 
happened." 

Corey  vs.  Morrill,  61  Vt.  598;  17  Atl.  840. 

So  held  where  the  statute  required  the  number  of  directors 
or  names  and  number  of  directors. 

Reed  vs.  Railway  Co.,  50  Ind.  342. 

So   held  where   a   statute   required   names   and   places   of 
residence  of  subscribers. 

Busenback  vs.  Road  Co.,  43  Ind.  265 ;  Miller  vs.  Road 
Co.,  52  Ind.  51. 

So  held  where  the  plan  for  carrying  on  the  business  shall 
be  stated. 

State  vs.  Central  Ohio  Mut.  Relief  Assn.,  29  Ohio  St. 
399. 

So  held  where  it  was  required  that  the  place  of  business 
should  be  stated. 

Harris  vs.  McGregor,  29  Cal.  124;  Montgomery  c. 
Forbes,  148  Mass.  249;  19  N.  E.  342;  1  Cummings,  Cas. 
Priv.  Corp.  69;  Clegwoo  vs.  Grange  Co.,  41  la.  122. 

So  held  where  the  purpose  of  the  corporation  was  required 
to  be  stated. 

Wesy  vs.  Ditching  Co.,  32  Ind.  138;  O'Reiley  vs.  Drain- 
ing Co.,  Id.  169;  Attorney  General  vs.  Lorman,  59  Mich. 
157;  26  N.  W.  311 ;  In  re  Crown  Bank,  44  Ch.  Div.  634. 

So  held  where  it  was  required  that  a  majority  of  the  as- 
sociates were  present  and  voted  at  the  election  of  directors. 
People  vs.  Selfridge,  52  Cal.  331. 

So  held  where  the   Articles  of   Incorporation   should   be 
signed  by  the  incorporators. 

Kaiser  vs.  Bank,  56  Iowa  104 ;  8  N.  W.  772. 

The  signature  of  the  incorporators  does  not  require  that 


96  INDUSTRIAL     CORPORATIONS 

they  give  their  full  name.    Their  initials  or  their  usual  signa- 
ture is  all  that  is  required. 

State  vs.  Beck,  81  Ind.  500. 

So  held  where  it  was  required  that  the  Articles  of  Incor- 
poration be  acknowledged  by  the  incorporators. 

Doyle  vs.  Mizner,  42  Mich.  332;  3  N.  W.  968;  Kaiser 
vs.  Bank,  56  Iowa  104;  8  N.  W.  772. 

So  held  where  the  statute  required  five  persons  to  sign 
and  acknowledge  the  Articles  of  Incorporation,  and  only 
four  had  signed  and  acknowledged. 

People  vs.  Montecito  Water  Co.,  97  Cal.  276;  32  Pac. 
236. 

However,  it  will  not  invalidate  the  Articles  of  Incorpora- 
tion should  the  notarial  certificate  or  acknowledgment  fail  to 
show  that  the  persons  acknowledging  were  personally  known 
to  him. 

People  vs.  Cheeseman,  7  Colo.  376;  3  Pac.  716. 
So  held  where  the  statute   required   the  Articles  of  In- 
corporation to  be  filed  in  a  certain  place,  office,  or  court. 

Abbott  vs.  Smelting,  etc.  Co.,  4  Neb.  416;  Kaiser  vs. 
Bank,  56  Iowa  104;  8  N.  W.  772. 

So  held  where  the  statute  required  that  notice  of  organi- 
zation stating  certain  facts  should  be  published. 

Clegg  vs.  Grange  Co.,  61  Iowa;  121  N.  W.  865;  Childs 
vs.  Kurd,  32  W.  Va.  66;  9  S.  E.  362;  Bigelow  vs. 
Gregory,  73  111.  197;  Hurt  vs.  Salisbury,  55  Mo.  311; 
Walton  vs.  Riley,  85  Ky.  413 ;  3  S.  W.  605 ;  Loverin  vs. 
McLaughlin  (111.  Sup.),  44  N.  E.  99. 

So  held  where  the  stock  was  required  to  be  subscribed  in 
good  faith  to  a  certain  amount  as  a  condition  precedent. 

People  vs.  Chambers,  42  Cal.  201  ;  Sweney  vs.  Talcott, 
85  Iowa  103;  52  N.  W.  106;  Lake  Ontario,  A.  &  N.  Y. 
R.  Co.  vs.  Mason,  16  N.  Y.  451 ;  Franklin  Fire  Ins.  Co 
vs.  Hart,  31  Md.  59;  Holman  vs.  State,  105  Ind.  569; 
5  N.  E.  702. 

Where  the  statute  does  not  require  subscriptions  to  cor- 
porate existence,,  the  corporation  may  organize  and  the  stock 


ARTICLES    OF    INCORPORATION     A    CONTRACT  97 

be  subscribed  to  afterward,  as  in  such  case  it  is  not  a  condi- 
tion precedent  to  corporate  existence. 

Perkins  vs.  Sanders,  56  Miss.  733 ;  Hammond  vs. 
Straus,  53  Md.  1;  Minor  vs.  Bank,  1  Pet.  46;  Johnson 
vs.  Kessler,  76  Iowa  411 ;  41  N.  W.  57;  National  Bank 
vs.  Texas  Ins.  Co.,  74  Tex.  421 ;  12  S.  W.  101. 

Where  the  statute  fixes  certain  things  to  be  done  and  the 
articles  claim  more  than  the  statute  allows,  this  will  not  in- 
validate the  articles  of  association,  as  it  may  be  rejected  as 
mere  surplus. 

People  vs.  Cheeseman,  7  Colo.  376;  3  Pac.  716. 
§  109.     Substantial  Compliance. 

A  substantial  compliance  with  a  statute  will  be  held  suffi- 
cient, but  this  does  not  mean  that  any  of  the  requirements 
may  be  treated  by  the  incorporators  as  unimportant,  for  the 
reason  that  they  are  statutory  requirements,  legal  require- 
ments, and  placed  there  by  the  State ;  and  whatever  might 
be  the  reason  that  surrounded  their  enactment,  it  is  not 
within  the  power  or  province  of  the  incorporators  to  reject 
any  of  them. 

People  vs.  Water  Co.,  97  Cal.  276;  32  Pac.  236,  is  a  case 
where  the  statute  required  five  subscribers,  and  also  that  they 
all  acknowledge  the  same  before  incorporation.  Five  signed, 
but  only  four  acknowledged.  This  was  held  not  to  be  suffi- 
cient, nor  even  a  substantial  compliance  with  the  statute. 

Clegg  vs.  Grange  Co.,  61  Iowa  121 ;  15  N.  W.  865. 
Where  the  statute  required  that  "the  manner  of  carrying 
on  the  business  of  said  association"  should  be  stated,  was  not 
complied  with  by  the  statement  that  "the  manner  of  carry- 
ing on  the  business,  especially  such  as  the  association  shall 
from  time  to  time  prescribe  by  rules,  regulations  and  by-laws 
not  inconsistent  with  the  laws  of  the  State." 

State  vs.  Association,  29  Ohio  St.  299;  In  re  Crown 

Bank,  44  Ch.  Div.  634. 

§  110.     Directory  Provisions. 

The  privisions  heretofore  stated  and  enumerated  under  the 


98  INDUSTRIAL     CORPORATIONS 

head  of  "conditions  precedent"  are  said  to  be  mandatory  pro- 
visions of  the  statute  in  contradistinction  to  those  provisions 
that  would  be  directory  merely.  Provisions  that  are  merely 
directory,  even  though  by  the  statute  required  to  be  per- 
formed, would  not  vitiate  the  charter.  Whether  a  particular 
provision  is  mandatory  or  directory  would  be  determined  by 
the  intention  of  the  Legislature  to  be  gathered  from  the  law 
itself. 

Utley  vs.  Union  Tool  Co.,  1  Gray  (Mass.)  139. 

To  further  illustrate:  The  Massachusetts  statute  pro- 
vided that  a  majority  of  those  signing  the  Articles  of  In- 
corporation should  call  the  first  meeting,  and  that  was  held 
to  be  a  provision  merely  directory  and  a  failure  to  comply 
therewith  did  not  orevent  the  corporation  from  coming  into 
existence. 

12  Allen  (Mass.)  362;  1  Cummings,  Cas.  Priv.  Corp.  67; 
Walworth  vs.  Brackett,  98  Mass.  98;  Cross  vs.  Mill  Co., 
17  111.  54;  Proprietors  of  City  Hotel  in  Worcester  vs. 
Dickinson;  6  Gray  (Mass.)  586,  593;  Eakright  vs.  Rail- 
road Co.,  13  Ind.  404;  Humphreys  vs.  Mooney,  5  Colo. 
282;  Braintree  Water  Supply  vs.  Town  of  Braintree, 
146  Mass.  482;  16  N.  E.  420. 

§  111.     Conditions  Subsequent  to  Doing  Business. 

Where  the  statute  prescribes  conditions  precedent,  the 
performance  of  which  must  be  had  before  it  can  become  a 
legal  and  existing  entity,  may  also  prescribe  other  condi- 
tions that  it  must  perform  before  it  begins  doing  business. 
Non-compliance  with  a  condition  subsequent  of  this  char- 
acter will  not  prevent  the  corporation  from  coming  into  legal 
existence,  and  whether  or  not  the  charter  could  be  forfeited 
for  non-compliance  with  the  conditions  subsequent  would 
depend  upon  the  particular  statute  and  the  penalty  therein 
prescribed. 

St.  Joseph  &  I.  R.  Co.  vs.  Shambaugh,  106  Mo.  557; 
17  S.  W.  582;  Toledo  &  Ann  Arbor  R.  Co.  vs.  Johnson, 
49  Mich.  148;  13  N.  W.  492;  Merrick  vs.  Governor  Co., 
101  Mass.  381. 


ARTICLES    OF     INCORPORATION     A     CONTRACT  99 

To  further  illustrate:  A  statute  of  the  State  of  Wisconsin 
provided  that  before  any  corporation  organized  under  such 
statute  should  commence  business,  the  officers  must  publish 
the  Articles  of  Incorporation  in  some  newspaper,  and  make 
a  certificate  setting  forth  the  purpose  of  the  corporation,  and 
deposit  the  same  with  certain  officers.  It  was  held  that  a 
failure  to  comply  with  these  conditions  subsequent  did  not 
affect  the  legal  existence  of  the  corporation. 

Harrod  vs.  Harmer,  32  Wis.  162;  In  re  Shakopee  Mfg. 
Co.,  37  Minn.  91 ;  33  N.  W.  219;  Baker  vs.  Backus  Admr., 
32  111.  79;  Lord  vs.  Association,  37  Md.  320;  Hammond 
vs.  Straus,  53  Md.  1,  II;  Holmes  vs.  Gilliland,  41  Barb. 
(N.  Y.)  568. 

In  the  case  of  Mokelume  Hill  Canal  Min.  Co.  vs.  Wood- 
bury,  14  Cal.  424,  it  is  said : — 

"There  is  a  broad  and  obvious  distinction  between  such  acts 
as  are  declared  to  be  necessary  steps  in  the  process  of  in- 
corporation and  such  as  are  required  of  the  individuals  seek- 
ing to  become  incorporated,  but  are  not  made  prerequisites 
to  the  assumption  of  corporate  powers.  In  respect  to  the 
former,  any  material  omission  will  be  fatal  to  the  existence 
of  the  corporation,  and  may  be  taken  advantage  of  collaterally 
in  any  form  in  which  the  fact  of  incorporation  can  properly 
be  called  in  question.  In  respect  to  the  latter,  the  corporation 
is  responsible  only  to  the  government,  and  in  a  direct  pro- 
ceeding to  forfeit  its  charter." 

Hyde  vs.  Doe,  4  Sawy  133 ;  Fed.  Cas.  No.  6969. 

§  112.     Who  May  Object  to  Corporate  Existence. 

No  one  but  the  Attorney-General  of  the  State  can  insti- 
tute a  suit  to  forfeit  the  charter  of  a  corporation,  while  con- 
ditions precedent  must  always  be  performed  in  order  to  bring 
the  corporation  into  legal  existence.  It  does  not  follow  that 
any  one  can  institute  proceedings  to  forfeit  the  charter,  even 
though  they  have  not  followed  the  statute  enacted  for  their 
incorporation.  Even  the  State  can  not  always  raise  the  ob- 
jection, as  we  shall  presently  see. 

A  stockholder  can  not  institute  such  suit. 

North  vs.  State,  107  Ind.  356;  Baker  vs.  Backus,  32  111. 


100  INDUSTRIAL     CORPORATIONS 

79;  Commonwealth  vs.  Union  Ins.  Co.,  5  Mass.  230; 
State  vs.  Pateerson,  etc.  Turnp.  Co.,  21  N.  J.  L.  9; 
Murphy  vs.  Farmers'  Bank,  20  Pa.  St.  415 ;  Rice  vs. 
National  Bank,  126  Mass.  300;  Folger  vs.  Columbian, 
etc.  Ins.  Co.,  99  Mass.  267. 

Where  refused  to  recognize  a  dissolution  decree  by  a 
New  York  court  at  the  instance  of  a  stockholder. 

Raisbeck  vs.  Oesterricher,  4  Abb.  N.  Cas.  444,  where 
the  plaintiff  claimed  that  the  incorporation  was  irregu- 
lar. 

Neither  can  a  corporate  creditor. 

Gaylord  vs.  Fort  Wayne,  etc.  R.  R.  6  Bliss  286 ;  S.  C.  10 
Fed.  Cas.  121. 

A  judgment  forfeiting  the  charter  of  a  private  corporation, 
where  the  State  is  not  a  party  to  the  suit,  is  a  nullity. 
Puckett  vs.  Abney,  84  Tex.  645. 

Nor  can  the  municipal  authorities  by  reason  of  the  change 
of  route  by  a  railroad. 

Moore  vs.  Brooklyn,  etc.  R.  R.,  108  N.  Y.  98. 

Nor  can  a  person  who  is  overcharged  on  a  turnpike  main- 
tain an  action  to  forfeit  its  charter.  An  action  must  be  in- 
stituted by  the  proper  authorities  of  the  State,  and  no  other 
officers  can  maintain  such  an  action  even  though  a  statute 
prescribes  a  forfeiture  for  non-payment  of  taxes ;  for  instance, 
the  secretary  of  state  can  not  institute  the  action. 

Greenbrier  Lumber  Co.  vs.  Ward,  30  W.  Va.  43. 

Neither  can  a  stockholder  sustain  an  action  to  oust  the 
charter  of  a  corporation  on  the  ground  that  it  is  a  combine 
forming  a  monopoly.  This  question  alone  is  with  the  State. 
A  stockholder  is  estopped  from  complaining.  He  is  presumed 
to  have  participated  and  understood  the  purposes  of  the  cor- 
poration. 

Coquard  vs.  National  L.  O.  Co.,  49  N.  E.  Rep.  563  (111.). 

In  each  and  every  case  the  objection  can  not  be  raised 
collaterally  by  the  State  even. 

North  vs.  State,  107  Ind.  356;  8  N.  E.  159. 


ARTICLES    OF     INCORPORATION     A    CONTRACT  101 

§  112a.    The  Rule  Stated. 

"The  reason  is  that  if  rights  and  franchises  have  been 
usurped,  they  are  the  rights  and  franchises  of  the  sovereign, 
and  he  alone  can  interpose.  Until  such  interposition,  the  pub- 
lic may  treat  those  possessing  and  exercising  corporate  powers 
under  color  of  law  as  doing  so  rightfully.  The  rule  is  in  the 
interest  of  the  public  and  is  essential  to  the  safety  of  business 
transactions  with  a  corporation." 

Duggan  vs.  Investment,  11  Colo.  113;  17  Pac.  105 

When  the  question  is  raised  as  to  the  legal  existence  of  a 
corporation,  the  questions  will  be  as  to  whether  the  corporate 
existence  is  de  jure  existence,  or  a  de  facto  existence,  or  neither. 
A  corporation  de  facto  is  a  corporation  existing  for  all  practi- 
cal purposes  as  a  corporate  body,  but  it,  because  of  failure 
to  comply  with  some  provision  of  the  law,  has  no  legal  right 
to  corporate  existence  as  against  the  State.  A,  corporation 
de  jure  is  a  corporation  in  law  as  well  as  in  fact,  and  it  can 
not  be  questioned  by  the  State  either  directly  or  collaterally. 
A  corporation  de  facto  has  corporate  existence  as  against  the 
State  when  it  is  attacked  collaterally,  and  has  such  right  as 
against  private  individuals  whether  they  attack  it  directly  or 
collaterally. 

It  has  been  held  that  "a  corporation  de  facto  may  legally 
do  and  perform  every  act  and  thing  which  the  same  entity 
could  do  and  perform  were  it  a  de  jure  corporation.  As  to 
all  the  world  except  the  paramount  authority  under  which 
it  acts,  and  from  which  it  receives  its  charter,  it  occupies 
the  same  position  as  though  in  all  respects  valid;  and  even 
as  against  the  State,  except  in  direct  proceedings  to  arrest 
its  usurpation  of  power,  it  is  submitted,  its  acts  are  to  be 
treated  as  efficacious." 

The  rule  that  applies  to  a  domestic  corporation  applies 
with  equal  force  to  a  foreign  corporation. 

Bank  of  Toledo  vs.  International  Bank,  21  N.  Y.  542; 

Lancaster  vs.  Improvement  Co.,  140  N.  Y.  576;  35  N. 

E.  964;  Wright  vs.  Lee,  4  S.  D.  237;  55  N.  W.  931. 

If,  however,  a  corporation  is  neither  dc  jure  nor  de  facto, 


102  INDUSTRIAL     CORPORATIONS 

it  has  no  standing  whatever,  and  its  existence  can  be  attacked 
directly  or  collaterally  by  any  individual  as  well  as  the  State, 
unless,  however,  there  is  some  element  of  estoppel.  There 
is  no  estoppel  as  to  the  State,  but  applies  only  to  individuals. 

Scheufler  vs.  Grand  Lodge,  45  Minn.  256;  47  N.  W.  799 ; 
Ferine  vs.  Grand  Lodge,  48  Minn.  82 ;  50  N.  W.  1022 ; 
Narragansett  Bank  vs.  Atlantic  Silk  Co.,  3  Mete. 
(Mass.)  287;  Farmers'  Loan  &  Trust  Co.  vs.  Toledo, 
A.  A.  &  N.  M.  Ry.  Co.,  67  Fed.  49;  Callender  vs.  Rail- 
road Co.,  11  Ohio  St.  516;  Stewart  Paper  Mfg.  Co.  vs. 
Ran,  92  Ga.  511;  17  S.  E.  748;  Fitzpatrick  vs.  Ruttcr, 
160  111.  282;  43  N.  E.  392;  Hamilton  vs.  Railroad  Co. 
(Pa.  Sup.),  23  Atl.  53;  Bon  Aqua  Imp.  Co.  vs.  Standard 
Fire  Ins.  Co.,  34  W.  Va.  764;  12  S.  E.  771 ;  Independent 
Order  of  Mutual  Aid  vs.  Paine,  122  111.  625;  14  N.  E. 
42;  see  also  Dooley  vs.  Cheshire  Glass  Co.,  15  Gray 
(Mass.)  494;  1  Cumming,  Cas.  Priv.  Corp.  418. 

To  understand  the  difference  between  a  de  facto  corpora- 
tion and  a  pretended  corporation  is  a  very  difficult  under- 
taking, as  there  does  not  appear  to  be  any  harmony  in  the 
adjudicated  cases.  As  clear  a  statement  and  as  near  to  the 
proposition  as  has  been  reached  will  be  found  in  1  Thomp. 
495,  where  Judge  Thompson  says : — 

"It  is  impossible  to  formulate  a  rule  on  the  subject  of  dc 
facto  corporations,  which  will  be  applicable  in  all  American 
jurisdictions,  or  which  will  receive  uniform  support  from  the 
decisions  in  any  one  such  jurisdiction.  Those  decisions  os- 
cillate between  two  extreme  views:  (1)  That  where  a  body 
of  men  act  as  a  corporation,  and  in  the  ostensible  possession 
of  corporate  powers,  it  will  be  conclusively  presumed,  in  all 
cases  except  in  a  direct  proceeding  against  them  by  the  State 
to  vacate  their  franchises,  that  they  are  a  corporation. 
(2)  That  the  conditions  named  in  statutes  authorizing  the 
organization  of  corporations  are  conditions  precedent,  and 
must  be  strictly  complied  with,  or  the  corporation  does  not 
exist;  and  that  the  want  of  compliance  with  any  one  condi- 
tion precedent  may  be  shown  by  any  one,  in  a  private  liti- 
gation with  the  pretended  corporation,  unless  he  has  estopped 
himself  by  his  conduct  from  challenging  its  corporate  exist- 
ence, and  frequently  without  reference  to  the  question  of 
estoppel." 


ARTICLES    OF     INCORPORATION     A     CONTRACT  103 

The  evidence  required  to  establish  a  corporation  de  facto 
must  show,  first,  the  bona  fide  attempt  to  incorporate ;  second, 
the  existence  of  some  kind  of  a  charter  under  some  law  where 
a  corporation  could  lawfully  be  created ;  third,  the  user  of  the 
party  to  the  suit  of  the  right  claimed  under  such  charter 
or  law. 

Eaton  vs.  Walker,  76  Mich.  579;  43  N.  W.  638;  Fin- 
negan  vs.- Noernberg,  52  Minn.  239;  53  N.  W.  1150; 
Duggan  vs.  Investment  Co.,  11  Colo.  113;  17  Pac.  105. 

§  113.    Acceptance  of  the  Charter. 

A  corporation  is  modeled  upon  a  State  or  nation,  and  is 
called  the  body  politic  as  well  as  corporate,  indicating  its 
origin  and  derivation.  It  is  supposed  that  the  corporation 
possesses  some  sort  of  sovereign  power.  This  is,  however,  a 
mistake,  as  it  has  no  such  authority  unless  it  be  especially 
granted  it  by  the  State.  The  right  of  eminent  domain,  for 
instance,  may  be  granted  to  a  corporation.  The  charter  of 
the  corporation  being  a  contract,  it  is  said  must  be  accepted, 
to  have  any  effect.  Like  every  contract,  there  must  be  con- 
sent both  of  the  Legislature  by  and  through  its  legislative 
enactment,  and  on  the  part  of  the  persons  incorporating. 
The  various  acts  of  the  general  assemblies  offering  to  per- 
sons generally  the  right  to  incorporate  is  consent  on  the  part 
of  the  State. 

State  vs.  Dawson,  16  Ind.  40;  Aspinwall  vs.  Daviess 
County  Com'rs,  22  How.  364. 

In  Smith  vs.  Silver  Val.  Min.  Co.  (Md.)  20  Atlantic  1032, 
Justice  Miller  said  : — 

"The  mere  grant  of  a  charter,  where  it  does  not  appear 
upon  the  face  of  the  incorporating  act,  or  otherwise,  that  the 
named  corporators  applied  for  it  does  not  create  the  corpo- 
rate body.  Something  must  be  done.  There  must  be  at  least 
an  acceptance  of  the  grant  by  a  majority  of  the  corporators 
before  corporate  life  and  existence  can  begin." 

It  is  also  the  rule  in  the  formation  of  corporations  that 
the  offer  of  a  charter  by  a  State  must  be  accepted  according 
to  its  terms.  This  is  the  general  rule  as  to  all  contracts.  It 


104  INDUSTRIAL     CORPORATIONS 

can  not  be  accepted  conditionally  or  on  terms  differing  upon 
the  offer,  nor  can  it  be  rejected  in  part  and  accepted  in  part 
unless  this  is  allowed  by  the  act. 

Lyons  vs.  Railroad  Co.,  32  Md.  18,  29. 

General  statutes  authorizing  the  formation  of  corporations 
by  any  person  who  will  comply  with  their  terms  are  general 
offers  and  may  be  accepted  by  any  one  or  by  any  number 
of  persons  complying  with  their  specific  provisions. 

Fire    Department    of    New    York    vs.    Kip,    10   Wend. 

N.  Y.  266. 

The  time  in  which  the  offer  to  incorporate  must  be  ac- 
cepted, if  it  is  limited  by  an  act,  must  be  complied  with,  else 
no  charter  could  be  created.  However,  if  the  act  is  an  open 
act,  general  in  its  terms  and  continuing,  all  that  is  essential 
is  to  comply  with  it,  and  a  corporation  can  be  created,  and 
unless  the  acceptance  of  the  charter  is  made  one  of  the  in- 
gredients of  the  corporating  act  and  a  method  provided,  it 
will  generally  be  sufficient  acceptance  if  it  can  be  in  any  way 
shown  that  the  incorporators  intended  to  accept  the  offer  and 
incorporate  the  corporation. 

Demarest  vs.  Flack,  128  N.  Y.  205 ;  28  N.  E.  645 ;  State 
vs.  Montgomery  Light  Co.,  102  Ala.  594;  15  South  347; 
Jackson  vs.  Walsh,  75  Md.  304;  23  Atl.  778;  St.  Joseph 
&  I.  R.  Co.  vs.  Shambaugh,  106  Mo.  557;  17  S.  W.  581 ; 
Com.  vs.  Cullen,  13  Pa.  St.  133 ;  Russell  vs.  McLellan,  14 
Pick  (Mass.)  63;  Society  of  Middlesex  Husbandmen  & 
Manufacturers  vs.  Davis,  3  Mete.  (Mass.)  133;  McKay 
vs.  Beard,  20  S.  C.  156. 

Signing  the  articles  of  association,  and  complying  with 
all  the  other  requirements  of  a  general  law  (conditions  prece- 
dent) authorizing  the  formation  of  corporations,  is  clearly 
sufficient  evidence  of  acceptance. 

Glymont  Imp.  &  Exc.  Co.  vs.  Toler,  80  Md.  278;  30 
Ail.  51 ;  Benbow  vs.  Cook,  115  N.  C.  324;  20  S.  E.  453. 

The  acceptance  of  the  charter  upon  the  showing  of  such 
acts  is  presumed. 

Bank  of  U.  S.  vs.  Danridge,  12  Wheat  64,  70. 


ARTICLES    OF    INCORPORATION     A     CONTRACT  105 

The  rules  above  stated  apply  with  equal  force  to  amend- 
ments of  Articles  of  Incorporations. 

Eastern  R.  Co.  vs.  Boston  &  M.  R.  Co.,  Ill  Mass.  125; 
Eidman  vs.  Bowman,  58  111.  444;  Chicago  City  Ry.  Co. 
vs.  Allerton,  18  Wall  233. 


106  INDUSTRIAL     CORPORATIONS 

CHAPTER    IX. 

EVERY   SHARE   HAS   A   VOTE. 

§  114.     One  Vote  at  Common  Law. 

At  common  law,  in  both  public  and  private  corporations, 
one  vote  to  an  individual,  irrespective  of  his  pecuniary  in- 
terest in  the  corporation,  was  all  that  was  allowed. 

Taylor  vs.  Griswold,  14  N.  J.  L.  222;  Re  Horbury,  etc. 
Co.,  L.  R.  11  Ch.  D.  109;  Commonwealth  vs.  Nicker- 
son,  10  Phila.  (Pa.)  55;  Harvard  Law  Rev.,  Nov.  1888, 
p.  156;  Commonwealth  vs.  Detwiller,  131  Pa.  St.  614. 

§  115.     Public  Corporation  Still  One  Vote. 

"Of  course,  in  a  public  corporation,  the  rule  still  is  that 
only  one  vote  is  allowed  to  a  voter." 

§  116.     Each  Share  Has  a  Vote. 

It  is  no  longer  the  rule  that  an  individual  votes  according 
to  his  individuality,  but  votes  according  to  his  interest  as 
represented  by  the  number  of  shares  of  stock  he  holds  in  the 
private  corporation.  Where  the  statutes  are  silent  upon  the 
subject,  a  by-law  may  give  the  right. 

Commonwealth  vs.  Detwiller,  131  Pa.  St.  614;  Proctor, 
etc.  Co.  vs.  Finley,  33  S.  W.  Rep.  188  (Ky.). 

Generally  at  the  present  time  statutes  or  the  charter  pre- 
scribe that  each  share  of  stock  shall  be  entitled  to  one  vote, 
and  such  provisions  apply  with  equal  force  to  all  elections 
or  questions  that  come  before  the  stockholders'  meetings. 

Hays  vs.  Commonwealth,  82  Pa.  St.  518;  Fredericks  vs. 

Pennsylvania  Canal  Co.,  109  Pa.  St.  50;  Re  Rochester, 

etc.  Co.,  40  Hun.  172. 

Such  is  believed  to  be  the  universal  custom  as  well  as 
the  law  upon  the  subject,  and  where  an  election  by  a  majority 
of  stockholders  is  called,  it  means  a  majority  in  interest,  that 
is  to  say,  a  majority  of  the  stock  held  by  the  individuals. 
Weinburgh  vs.  Union,  etc.  Co.,  37  Atl.  Rep.  1026. 


MAJORITY     RULE  107 

CHAPTER    X. 

MAJORITY  RULE. 

§  117.  Parliamentary  and  Civil  Law  Alike  Majority  Rule. 
Corporations  being  fashioned  after  the  government,  which 
is  a  body  politic  and  corporate,  as  are  also  the  sovereign  States, 
etc.,  as  well  as  all  deliberate  assemblies,  and  like  them  have 
a  charter,  which  is  analogous  to  their  constitutions,  being 
their  grants  of  respective  powers  and  by-laws,  which  is  anal- 
ogous to  the  statutes  of  the  government  and  States,  etc.,  and, 
like  them,  move  by  and  through  agents  only,  it  follows  that 
some  form  of  government  must  be  adopted,  and  it  follows 
that  to  adopt  the  same  form  of  movement  as  is  used  and  in 
force  by  these  deliberative  assemblies  would  be  the  most  nat- 
ural and  proper.  Hence,  it  is  the  universal  practice  of  all 
corporations  to  operate  under  the  usual  form  of  parliamentary 
law.  One  of  the  rules  of  parliamentary  law,  unless  otherwise 
stated  in  the  by-laws,  is  that  a  majority  rules.  The  majority 
rule  means  "a  majority  of  votes  cast,  ignoring  blanks,  which 
should  never  be  counted." 

Robert's  Rules  of  Order,  p.  116,  Note. 

This  rule  applies  with  equal  force,  from  a  legal  standpoint, 
to  all  corporations.  The  majority  have  the  right  to  bind  the 
minority  by  a  vote  duly  taken  upon  any  matter  within  the 
radius  of  the  charter  power  or  authority. 

Durfee  vs.  Railroad  Co.,  5  Allen  (Mass.)  230,  242;  1 
Gumming,  Cas.  Priv.  Corp.  773;  Dudley  vs.  Kentucky 
High  School,  9  Bush  (Ky.)  578;  1  dimming,  Cas.  Priv. 
Corp.  767. 

Within  the  State  the  majority  rule  obtains  in  stockholders' 
meetings  as  well  as  directors,  and  within  their  scope  the  mi- 
nority can  not  complain  of  their  action,  unless  fraud  is  com- 
mitted. 

Durfee  vs.  Old  Colony,  etc.  R.  R.,  87  Mass.  230;  Cov- 


108  INDUSTRIAL     CORPORATIONS 

mgton  vs.  Covington,  etc.  Bridge  Co.,  10  Bush  (Ky.) 
69,  70 ;  East  Tennessee,  etc.  R.  R.  vs.  Gammon,  5  Sneed 
(Tenn.)  567;  Faulds  vs.  Yates,  57  111.  416;  Leo  vs. 
Union  Pacific  R.  R.,  19  Fed.  Rep.  283  S.  C. ;  17  Fed. 
Rep.  273;  Barnes  vs.  Brown,  80  N.  Y.  527;  Gifford  vs. 
New  Jersey  R.  R.,  10  N.  J.  Eq.  171 ;  Dudley  vs.  Ken- 
tucky High  School,  9  Bush  (Ky.)  576. 

See  also  Livingston  vs.  Lynch,  4  Johns,  Ch.  573,  in  which 
Chancellor  Kent  clearly  states  that  the  right  of  the  majority 
to  rule  is  one  of  the  chief  differences  between  a  corporation 
and  a  partnership.  The  majority  rule  at  common  law. 

Commonwealth  vs.  Nickerson,  10  Phila.  (Pa.)  55;  New 
Orleans,  etc.  R.  R.  vs.  Harris,  27  Miss.  517,  537. 

A  majority  of  the  stockholders  control  the  policy  of  the 
corporation  and  regulate  and  govern  the  lawful  exercise  of 
its  franchise  and  business,  even  though  the  management  may 
not  seem  to  be  wise.  The  majority  rule. 

Wheeler  vs.  Pullman  Iron,  etc.  Co.,  143  111.  197. 

Where  a  statute  requires  a  three-fourths  vote  in  value  for 
a  reorganization   of  a  company,  the  stock  not  voted  is  not 
counted  to  make  up  three-fourths,  even  though  the  trustees 
who  represent  the  stock  refuse  to  assent  or  dissent. 
Re  Neath,  etc.  Ry.,  1  Ch.  349. 

Where  stockholders  in  an  apartment-house  corporation 
are  entitled  to  rent  apartments  at  a  rental  to  be  fixed  by  a 
majority  vote  of  the  stockholders,  an  increased  rental  so 
voted  is  legal.  The  by-laws  providing  for  such  a  vote  over- 
ride a  general  statement  in  a  prospectus  to  the  contrary,  the 
stockholders  knowing  of  the  by-law. 

Compton  vs.  Chelsea,  128  N.  Y.  537;  Meeker  vs.  Winth- 
rop  Iron  Co.,  17  Fed.  Rep.  48,  S.  C.  sub.  nom. ;  Winth- 
rop  Iron  Co.  vs.  Meeker,  109  U.  S.  180;  but  see  Mac- 
Dougall  vs.  Gardiner,  L.  R.,  1  Ch.  D.  13. 

Those  of  the  stockholders  who  attend  the  meeting  con- 
stitute a  quorum,  although  they  are  a  minority. 

Morrill  vs.  Little  Falls  Mfg.  Co.,  53  Minn.  371 ;  Granger 
vs.  Grubb,  7  Phila.  350. 


MAJORITY     RULE  109 

Criag  vs.  First,  etc.  Church,  88  Pa.  St.  42,  where  the  prin- 
ciple is  elucidated  that  this  is  the  rule  for  a  meeting  com- 
posed of  an  indefinite  number  of  persons,  like  stockholders, 
but  that  where  a  definite  number  is  involved,  as  in  a  board 
of  directors,  then  a  majority  must  be  present. 

Brown  vs.  Pacific  Mail,  etc.,  5  Blatchf.  525;  S.  C,  4 
Fed.  Cas.  420;  Field  vs.  Field,  9  Wend.  394;  Gowens 
Appeal,  10  W.  N.  Cas.  85  (Pa.)  ;  Madison  Ave.  Bapt. 
Church  vs.  Oliver  St.  Bapt.  Church,  5  Robt.  (N.  Y.) 
649;  Everett  vs.  Smith,  32  Minn.  53. 

It  has  been  held  that  one  person  can  not  constitute  a 
quorum ;  that  at  least  two  members  are  necessary  to  make  a 
corporate  meeting. 

Sharpe  vs.  Dawes,  46  L.  J.  (Q.  B.)  104. 

In  this  case  one  stockholder  "met,"  did  all  necessary  busi- 
ness, and  then  voted  himself  a  vote  of  thanks. 

In  re  Sanitary  Carbon  Co.,  12  W.  N.,  p.  223,  where  one 
stockholder,  having  also  proxies  of  the  remaining  three  stock- 
holders held  a  meeting,  "voted  himself  into  the  chair,  pro- 
posed a  resolution  to  wind  up  voluntarily,  declared  the  reso- 
lution passed,  and  appointed  a  liquidator."  The  court 
reluctantly  followed  the  preceding  case  and  declared  the 
"meeting"  invalid. 

Without  the  State,  stockholders  can,  when  they  all  con- 
sent, perform  as  valid  acts  as  if  they  were  within  the  State. 

Why  can  not  a  majority  of  stockholders  transact  any  busi- 
ness of  the  corporation  within  their  province,  without  the 
State,  with  equal  force  as  if  they  were  within  the  State,  pro- 
vided they  do  no  fraud?  Who  will  be  injured?  Where  there 
is  no  wrong  or  injury,  who  can  complain? 

It  becomes  a  question  of  distance,  inconvenience,  and 
minority  rule,  rather  than  right  or  majority  rule,  to  say  the 
majority  stockholders  can  not  transact  the  business  of  the 
corporation  in  a  foreign  jurisdiction  as  well  as  within  the 
State.  If  the  minority  have  notice,  and  do  not  appear  in  a 
meeting  out  of  the  state  of  formation  therein,  they  control. 


110  INDUSTRIAL     CORPORATIONS 

CHAPTER    XI. 

QUORUM. 

§  118.     Majority  Who  Attend. 

At  common  law,  each  stockholder  had  .one  vote,  irrespec- 
tive of  the  number  of  shares  owned  by  him. 

Taylor  vs.  Griswold,  14  N.  J.  L.  222 ;  Re  Horbury,  etc. 
Co.,  L.  R.  11  Ch.  D.  109;  Commonwealth  vs.  Nickerson, 
10  Phila.  (Pa.)  55;  Commonwealth  vs.  Detwiller,  131 
Pa.  St.  614. 

It  is  generally  provided  by  statute,  charter,  or  by-law  that 
each  share  of  stock  have  one  vote.  The  rule  of  the  common 
law  does  not  obtain  in  jurisdiction  where  statutory  provisions 
exist. 

The  majority  of  those  who  do  attend  a  duly  and  regularly 
called  stockholders'  meeting  can  transact  the  business  of  that 
meeting  regardless  of  whether  the  number  present  are  a  ma- 
jority of  all  the  stockholders  or  not ;  those  who  do  attend  will 
constitute  a  quorum. 

Morril  vs.  Little  Falls  Mfg.  Co.,  53  Minn.  371 ;  Granger 
vs.  Grubb,  7  Phila.  350;  Craig  vs.  First,  etc.  Church,  88 
Pa.  St.  42. 

§  119.     Majority  in  Interest. 

Nevertheless,  where  by  statute  the  quorum  is  to  be  a  ma- 
jority of  the  stockholders,  this  means  a  majority  in  interest. 
Weinburg  vs.  Union,  etc.  Co.,  37  Ail.  Rep.  1026  (N.  J.). 

There  are  two  exceptions  to  the  above  majority  rule;  to 
wit :  First,  the  majority  can  not  transact  ultra  vires  acts ; 
second,  nor  accept  an  amendment  of  the  charter  made  by  the 
Legislature.  In  either  case,  the  minority  or  any  stockholder 
may  enjoin  it  or  set  it  aside. 

McFadden  vs.  Leeka,  48  Ohio  St.  513;  Winter  vs.  Mus- 
cogee  R.  R.,  11  Ga.  438;  Middlesex  Turnp.  Corp.  vs. 
Locke,  8  Mass.  268;  Middlesex  Turnp.  Corp.  vs.  Swan, 


QUORUM  111 

10  Mass.  384;  Hester  vs.  Memphis,  etc.  R.  R.,  32  Miss. 
378;  Witter  vs.  Mississippi,  etc.  R.  R.,  20  Ark.  463; 
Champion  vs.  Memphis,  etc.  R.  R.  35  Miss.  692;  Simp- 
son vs.  Denison,  10  Hare  54;  Manheim,  etc.  Co.  vs. 
Arndt,  31  Pa.  St.  317;  Thompson  vs.  Guion,  5  Jones 
Eq.  (N.  C.)  113;  Hartford,  etc.  R.  R.  vs.  Croswell,  5 
Hill  383;  Marietta,  etc.  R.  R.  vs.  Elliott,  10  Ohio  St.  57; 
First  Nat.  Bank  vs.  Charlotte,  84  N.  C.  433 ;  Memphis 
Branch  R.  R.  vs.  Sullivan,  57  Ga.  240;  Indiana,  etc. 
Turnp.  Co.  vs.  Phillips,  2  Pen.  &  W.  (Pa.)  184;  Fulton 
County  vs.  Mississippi,  etc.  R.  R.,  21  111.  338;  Carlye 
vs.  Terre  Haute,  etc.  R.  R.,  6  Ind.  316;  Pittsburg,  etc.  R. 
R.  vs.  Gazzam,  32  Pa.  St.  340;  Union  Locks  &  Canal 
vs.  Towne,  1  N.  H.  44;  Ashton  vs.  Burbank,  2  Dill.  435 ; 
S.  C.  2  Fed.  Cas.  26;  Stevens  vs.  Rutland,  etc.  R.  R., 
29  Vt.  545 ;  Noeson  vs.  Port  Washington,  37  Wis.  168 ; 
Mahan  vs.  Wood,  44  Cal.  462;  Illinois,  etc.  R.  R.  vs. 
Cook,  29  111.  237;  McGray  vs.  Junction  R.  R.,  9  Ind. 
358 ;  Shelbyville,  etc.  Turnp.  Co.  vs.  Barnes,  42  Ind.  498 ; 
Booe  vs.  Junction  R.  R.,  10  Ind.  93;  New  Orleans,  etc. 
R.  R.  vs.  Harris,  27  Miss.  517;  Clearwater  vs.  Meredith, 
1  Wall.  25 ;  Knoxville  vs.  Knoxville,  etc.  R.  R.,  22  Fed. 
Rep.  758;  Kean  vs.  Johnson,  9  N.  J.  Eq.  401  ;  Black  vs. 
Deleware,  etc.  Canal  Co.,  24  N.  J.  Eq.  455 ;  Cf.  Lauman 
vs.  Lebanon  Valley  R.  R.,  30  Pa.  St.  42;  Mowrey  vs. 
Indianapolis,  etc.  R.  R.,  4  Biss.  78  W.  C.;  17  Fed.  Cas. 
930;  Fry  vs.  Lexington,  etc.  R.  R.,  2  Mete.  (Ky.)  314; 
Deleware,  etc.  R.  R.,  Irick,  23  N.  J.  L.  321 ;  Taylor  vs. 
Supervisor,  86  Va.  506;  Pearce  vs.  Madison,  etc.  R.  R., 
21  How.  441 ;  Tuttle  vs.  Michigan  Air  Line  R.  R.,  35 
Mich.  247;  New  Jersey  Mid.  Ry.  vs.  Strait,  35  N.  J.  L. 
322. 

The  stockholder  may  say :  "I  have  agreed  to  become  in- 
terested in  a  railroad  company,  and  have  contracted  in  view 
of  the  profits  to  be  expected  and  the  perils  and  losses  incident 
to  that  description  of  business ;  but  I  have  not  agreed  that 
those  to  be  entrusted  with  the  capital  I  contribute  shall  have 
power  to  use  it  in  a  business  of  a  different  character,  and 
attended  with  hazards  of  a  different  description." 

Maruetta,  etc.  R.  R.  vs.  Elliott,  10  Ohio  St.  57;  Shaw 
vs.  Campbell,  etc.  Co.,  15  S.  W.  Rep.  245  (Ky.)  ;  Mer- 
cantile Statement  Co.  vs.  Kneal,  51  Minn.  263;  Snook 


112  INDUSTRIAL     CORPORATIONS 

vs.  Georgia  Imp.  Co.,  83  Ga.  61 ;  Hill  vs.  Glasgow  R.  R. 
41  Rep.  Fed.  610;  New  Orleans,  etc.  R.  R.  vs.  Harris, 
27  Miss.  517;  Re  Opinion  of  the  Judges,  28  S.  E.  Rep. 
18;  Tucker  vs.  Russell,  82  Fed.  Rep.  263;  Sheriff  vs. 
Lowndes,  16  Md.  357;  Louisville  vs.  University  of 
Louisville,  15  B.  Mon.  (Ky.)  642;  Norris  vs.  Abingdon 
Academy,  7  Gill  &  J.  (Md.)  7.  8;  Harvard  L.  Rev.  396; 
Loewenthal  vs.  Rubber,  etc.  Co.,  52  N.  J.  Eq.  440; 
Printing  House  vs.  Trustees,  104  U.  S.  711;  Hoey  vs. 
Henderson,  32  La.  Ann.  1069;  Re  St.  Mary's  Church, 
7  Serg.  &  R.  (Pa.),  P.  517. 


CUMULATIVE    VOTING  113 

CHAPTER   XII. 

CUMULATIVE  VOTING. 

§  120.     Statutory  Invention. 

The  invention  of  cumulative  voting  is  a  statutory  inven- 
tion intended  to  give  the  minority  an  opportunity  to  reach  a 
representation  on  the  board  of  directors  or  in  any  committee 
where  their  rights  should  be  represented.  It  is  intended  also 
to  prevent  the  majority  from  capturing  the  entire  situation 
and  practically  keep  the  workings  of  the  corporation  secluded 
from  knowledge  of  the  minority.  The  following  States 
have  provided  for  cumulative  voting,  either  by  their  consti- 
tutions or  statutes;  to  wit:  California,  Pennsylvania,  Illinois, 
West  Virginia,  Nebraska,  Michigan,  Missouri,  Idaho,  Kansas, 
Kentucky,  Montana,  North  Dakota,  South  Dakota,  Missis- 
sippi. 

§121.     Rule  Cumulative  Voting. 

In  Wright  vs.  Central  Cal.  etc.  Co.,  67  Cal.  532,  the  court 
said  respecting  the  clause  conferring  the  right  of  cumulative 
voting,  that  this  provision  conferred  "upon  the  individual 
stockholder,  entitled  to  vote  at  an  election,  the  right  to  cast 
all  the  votes  which  his  stock  represents,  multiplied  by  the 
number  of  directors  to  be  elected,  for  a  single  candidate 
should  he  think  proper  to  do  so,  .  .  .  or  by  distributing 
them,  upon  the  same  principle,  among  as  many  candidates 
for  directors  as  he  shall  think  fit." 

§  122.     Cumulative  Voting  Tnck. 

Cook  on  Corporations,  vol.  2,  p.  1138,  sec.  609a,  says  of 
cumulative  voting: — 

"If  there  are  six  directors  to  be  elected,  a  stockholder  who 
owns  one  hundred  shares  may  poll  six  hundred  votes;  and 
9 


114  INDUSTRIAL     CORPORATIONS 

these  he  may  give  entirely  to  one  or  more  of  the  six  candi- 
dates as  he  may  see  fit.  In  this  way,  any  minority  of  the  stock- 
holders exceeding  one-sixth  part,  acting  together,  may  elect 
one  member  of  a  board  of  directors,  and  thus  secure  a  repre- 
sentation in  that  body.  A  larger  minority  might  secure  the 
election  of  two  members  of  such  a  board,  the  possibility  of  in- 
creasing the  minority  representation  increasing  as  the  minor- 
ity increases,  without  it  ever  becoming  possible  for  a  minority, 
upon  a  full  vote,  to  secure  more  than  its  equitable  proportion 
of  the  representation." 

The  genius  of  circumvention  is  generally  equal  to  the 
genius  of  invention,  and,  while  cumulative  voting  is  possibly 
a  protection  to  a  certain  degree  to  the  minority,  it  is  also  sus- 
ceptible of  being  used  as  the  means  of  tricks  and  traps  as  is 
shown  by  Mr:  Cook  in  his  work  on  corporations. 

Thus,  suppose  there  are  1,000  shares  and  ten  directors  to 
be  elected,  and  one  person  holds  600  shares.  Clearly  he 
should  be  able  to  elect  a  majority  of  the  ten  directors.  Sup- 
pose he  votes  his  600  votes  for  six  of  his  friends  (A,  B,  C,  D, 
E,  and  F)  and  for  four  of  the  minority  (G,  H,  I,  and  J)  ;  and 
suppose  at  the  same  time  the  400  shares  of  the  minority  are 
cumulated  on  three  other  parties  (K,  L,  and  M),  with  ten 
votes  for  the  four  directors  mentioned  above  (G,  H,  I,  and  J). 
The  result  will  then  be  as  follows : — 

A,  B,  C,  D,  E,  and  F  have 600  votes  each. 

G,  H,  I,  and  J  have 610  votes  each. 

K,  L,  and  M  have 1,320  votes  each. 

In  other  words,  the  majority  of  votes  do  not  elect.  Again, 
suppose  the  holder  of  the  600  shares  does  not  vote  for  any 
minority  candidate  at  all,  but  casts  600  votes  for  each  of  his 
six  candidates,  A,  B,  C,  D,  E,  and  F.  Even  then  he  may  lose 
the  election.  The  minority  400  may  cumulate  their  4,000 
votes  on  six  candidates,  and  give  each  of  the  six  666  2-3  votes. 
Under  the  cumulative  system,  the  majority,  in  order  to  be 
safe,  must  not  only  abandon  the  idea  of  electing  the  whole 
board,  but  must  cumulate  their  votes  on  such  a  proportion  of 
the  board  as  their  stock  bears  to  the  whole  stock,  and  must 


CUMULATIVE    VOTING  115 

not    cast    complimentary    votes    for    representatives    of    the 
minority. 

Cook  on  Corp.,  vol.  2,  p.  1141 ;  sec.  609a,  note  1  and  2. 

Stockholders  are  not  compelled  to  vote  on  the  cumulative 
plan  unless  they  see  fit,  even  though  the  statute  provides  for 
this  character  of  voting. 

Schmidt  vs.  Mitchell,  41  S.  W.  Rep.  929  (Ky.). 


116  INDUSTRIAL     CORPORATIONS 

CHAPTER   XIII. 

PROXIES. 

§  123.    Proxies  None  at  Common  Law. 

Voting  by  proxy  is  a  very  common  form  of  carrying  on 
corporations.  Where  there  is  perfect  harmony  in  the  man- 
agement of  a  concern,  it  is  very  often  the  case  the  stock- 
holders, being  satisfied  with  the  management,  give  their 
proxies  to  certain  members  interested  with  them  in  the  com- 
pany, and  are  possibly  hardly  ever  at  any  of  the  meetings 
of  the  corporation.  Proxy  means  a  person  who  is  substi- 
tuted or  deputed  by  another  to  represent  him. 
Black's  Law  Dictionary,  p.  960. 

A  vote  by  proxy  is  where  one  person  authorizes  another 
by  a  power  of  attorney  or  otherwise  to  vote  his  stock  in  the 
corporation.  No  such  invention  existed  at  common  law  as 
voting  by  proxy. 

Taylor  vs.  Griswold,  14  N.  J.  L.  223 ;  Philips  vs.  Wick- 
ham,  1  Paige  590;  Brown  vs.  Commonwealth,  3  Grant 
(Pa.)  209;  Craig  vs.  First  Presbyterian  Church,  88  Pa. 
St.  42;  Commonwealth  vs.  Bringhurst,  103  Pa.  St.  134; 
People  vs.  Twaddell,  18  Hun.  427,  430;  Re  Dean  and 
Chapter  of  Femes,  Davies  116,  129;  Attorney-General 
vs.  Scott,  1  Vesey  413;  Harben  vs.  Phillips,  L.  R.  23 
Ch.  D.  14,  22,  36. 

At  common  law  all  the  votes  must  be  given  in  person. 
Taylor  vs.  Griswold,  14  N.  J.  Law,  222 ;  27  Am.  Dec.  33 ; 
Com.  vs.  Bringhurst,  103  Pa.  St.  134;  49  Am.  Rep.  119; 
Phillips  vs.  Wickham,  1  Paige,  Ch.  (N.  Y.)  590;  Peo- 
ple vs.  Twaddell,  18  Hun.  (N.  Y.)  427. 

§  124.     Proxy  By-law  Charter  or  Statutory  Matter. 

By  the  weight  of  authority,  by-laws  may  be  enacted  by  a 
corporation  giving  the  right  to  vote  by  proxy. 

Detwiller  vs.  Com.,  131  Pa.  St.  614;  18  Atl.  990;  State 


PROXIES  117 

vs.  Tudor,  5  Day  (Conn.)  329;  5  Am.  Dec.  162;  People 
vs.  Crossley,  69  111.  195. 

It  follows  that  before  an  individual  can  vote  by  proxy  that 
he  must  be  empowered  to  do  so  by  reason  of  a  statute,  a  char- 
ter, or  by-laws.  For  illustration,  it  was  provided  in  the  gen- 
eral incorporation  acts  of  New  York  that  each  stockholder, 
"being  a  citizen  of  the  United  States,"  had  the  right  to  vote 
by  proxy,  under  which  it  was  held  not  to  give  an  alien  stock- 
holder the  right  to  vote  by  proxy. 

In  re  Barker,  6  Wend.  (N.  Y.)  509. 

A  proxy  can  be  given  only  by  him  who  owns  the  stock. 
As  was  said: — 

"The  right  of  voting  stock  is  inseparable  from  the  right 
of  ownership.  The  one  follows  as  a  sequence  from  the  other, 
and  the  right  to  vote  can  not  be  separated  from  the  ownership 
without  the  consent  of  the  legal  power." 

Tunis  vs.  Railroad  Co.,  149  Pa.  St.  70;  24  Atl.  88. 

The  stockholders  of  a  corporation  can  not  agree  not  to  sell 
or  assign  their  shares  or  give  a  power  of  attorney  to  vote 
the  same  without  the  consent  of  all  the  parties  to  the  agree- 
ment. Such  an  agreement  is  void  on  three  grounds :  first, 
because  the  agreement  not  to  sell  or  assign  is  in  restraint  of 
trade,  and  therefore  against  public  policy;  second,  because 
the  agreement  not  to  vote  by  proxy  was  pernicious  and  con- 
trary to  public  policy ;  third,  because  such  an  agreement  was 
a  mere  nudum  pactum  and  void. 

Bostwick  vs.  Chapman  (Shepaug  Voting  Trust  Cases), 
60  Conn.  553 ;  24  Atl.  32. 

The  court,  speaking  by  Judge  Robinson,  further  said : — 

"This  I  conceive  to  be  against  the  policy  of  the  law, 
whether  the  power  so  to  vote  be  for  five  years  or  for  all  time. 
It  is  the  policy  of  our  law  that  ownership  of  stock  shall  con- 
trol the  property  and  the  management  of  the  corporation, 
and  this  can  not  be  accomplished,  and  this  good  policy  is 
defeated  if  stockholders  are  permitted  to  surrender  all  their 
discretion  and  will  in  the  important  matter  of  voting,  and 
suffer  themselves  to  be  mere  passive  instruments  in  the  hands 


118  INDUSTRIAL     CORPORATIONS 

of  some  agent,  who  has  no  interest  in  the  stock,  equitable  or 
legal,  and  no  interest  in  the  general  prosperity  of  the  corpora- 
tion. And  this  is  not  entirely  for  the  protection  of  the  stock- 
holder himself,  but  to  compel  a  compliance  with  the  duty 
which  each  stockholder  owes  to  his  fellow  stockholder  to  so 
use  such  power  and  means  as  the  law  and  his  ownership 
of  stock  give  him  that  the  general  interest  of  stockholders 
shall  be  protected,  and  the  general  welfare  of  the  corporation 
sustained,  and  its  business  conducted  by  its  agents,  managers, 
and  officers,  so  far  as  may  be,  upon  prudent  and  honest  business 
principles,  and  with  just  as  little  temptation  to  and  opportunity 
for  fraud,  and  the  seeking  of  individual  gains  at  the  sacrifice 
of  the  general  welfare,  as  is  possible.  This,  I  take  it,  is  the 
duty  of  one  stockholder  in  a  corporation  owes  to  his  fellow 
stockholder,  and  he  can  not  be  allowed  to  disburden  himself 
of  it  in  this  way.  He  may  shirk  it,  perhaps,  by  refusing  to 
attend  stockholders'  meetings,  or  by  declining  to  vote  when 
called  upon,  but  the  law  will  not  allow  him  to  strip  himself 
of  the  power  to  perform  his  duty.  To  this  extent,  at  least, 
a  stockholder  stands  in  a  fiduciary  relation  to  his  fellow  stock- 
holders." 

Griffith  vs.  Jewett,  15  Wkly.  Law  Bui.  419;  Moses  vs. 

Scott,  84  Ala.  608 ;  4  South.  742. 

§  125.     Proxy  Revocable. 

The  question  whether  a  power  of  attorney  or  proxy  to 
vote  is  revocable  or  not  often  arises,  and  the  rule  is  that 
even  though  the  power  of  attorney  or  proxy  may  be  in  terms 
irrevocable,  still  it  may  be  revoked  at  any  time  before  the 
vote,  if,  however,  it  is  not  coupled  with  an  interest. 
Woodruff  vs.  Railroad  Co.,  30  Fed.  91. 

It  has  been  held  that  such  a  contract  as  an  irrevocable 
power  of  attorney  to  vote  stock  was  not  contrary  to  public 
policy,  but  merely  revocable. 

Brown  vs.  Steamship  Co.,  5  Blatchf.  525 ;  Fed.  Cas.  No. 
2025. 

But  in  Bostwick  vs.  Chapman,  supra,  it  was  held  contrary 
to  public  policy  to  allow  a  stockholder  to  strip  himself  of  the 
power  to  vote  upon  his  shares  or  to  determine  how  they  should 
be  voted,  by  giving  an  irrevocable  proxy  to  one  who  has  no 


PROXIES 

beneficial  interest  or  title  in  or  to  the  stock  or  in  the  affairs  of 
the  corporation.  A  proxy  or  power  of  attorney  must  be  suffi- 
cient upon  its  face  to  show  that  it  is  intended  by  the  giver  to 
cast  the  right  of  voting  to  the  one  who  receives  it  and  that 
there  is  no  fraud. 

In  re  St.  Lawrence  Steamboat  Co.,  44  N.  J.  Law  529. 
A  proxy  given  for  an  election  merely  does  not  enable  the 
proxy  to  vote  to  dissolve  the  corporation  or  sell  the  entire 
corporate  business  or  property  or  vote  upon  other  important 
business,  unless  the  proxy  specifically  so  designates,  and  when 
a  proxy  designates  the  purpose  for  which  it  is  given,  it  can 
not  be  used  for  any  other  purpose. 

Abbott  vs.  American  Hard  Rubber  Co.,  33  Barb.  578, 
584;  Cumberland  and  Coal  Co.  vs.  Sherman,  30  Barb. 
553,  577 ;  Re  Wheeler,  2  Abb.  Pr.  (N.  S.)  361 ;  Marie  vs 
Garrison,  13  Abb.  N.  Cas.  210,  235 ;  Brown  vs.  Byers, 
16  M.  &  W.  252 ;  Re  Haven,  etc.  Co.,  L.  R.  20  Ch.  D. 
151 ;  Regina  vs.  Government,  etc.  Co.,  L.  R.  3  Q.  B.  D. 
442;  Decatur  Blgd.  etc.  Co.  vs.  Neal,  97  Ala.  717; 
Howard  vs.  Hull,  5  Ry.  &  Corp.  L.  J.  255  (Eng.). 

To  illustrate :  A  proxy  for  an  election  does  not  extend  to 
an  election  four  months  later. 

Howard  vs.  Hull,  5  Ry.  &  Corp.  L.  J.  255  (Eng.). 
A  proxy  to  vote  at  a  corporate  meeting  is  not  authorized 
to  vote  to  discharge  a  mortgage  which  secures  the  stockholder 
who  gave  the  proxy,  as  a  creditor  of  the  corporation. 

Moore  vs.  Ensley,  20  S.  Rep.  744  (Ala.). 
A  general  proxy  giving  the  power  to  vote  as  fully  as  a 
stockholder  could   if  he   were   personally  present,  gives  the 
right  to  vote  on  the  question  of  adjournment  and  of  opening 
the  ballots. 

Forsyth  vs.  Brown,  2  Pa.  Dist.  765. 

A  proxy  has  a  right  to  vote  on  a  viva  voce  vote  or  show 
of  hands.  However,  a  person  may  hold  the  proxies  of  several 
persons,  and  yet  when  the  vote  is  taken  by  show  of  hands, 
he  has  only  one  vote. 

Ernest  vs.  Loma,  etc.  Mines,  75  L.  T.  Rep.  317. 


120  INDUSTRIAL     CORPORATIONS 

In  England  proxies  deposited  abroad  have  been  allowed  to 
vote  by  telegram. 

Commonwealth  vs.  Patterson,  158  Pa.  St.  476. 

In  New  York  the  sale  of  proxies  is  forbidden.  There  is 
no  restraint  in  many  of  the  States  against  the  sale  of  proxies, 
and  this  is  one  of  the  means  by  which  pivotal  stockholders 
oftentimes  acquire  funds  from  ambitious  persons  who  desire 
to  hold  control  of  the  corporation. 

Hafer  vs.  New  York,  etc.  R.  R.,  14  Week.  L.  Bui.  68. 

However,  it  is  a  fraud  for  the  directors  of  a  corporation 
to  use  the  funds  of  the  corporation  to  purchase  proxies  for 
themselves  or  their  nominees,  and  upon  such  a  case  about 
to  happen,  such  action  may  be  enjoined,  and  if  it  has  happened, 
the  funds  may  be  recovered  to  the  corporation. 

Studdert  vs.  Grosvenor,  L.  R.  33  Ch.  D.  528. 

The  giving  of  proxies  may  be  directed  by  a  will,  and  if 
the  parties  to  whom  the  proxies  are  given  fail  or  refuse  to 
execute  the  directions  of  the  will,  a  court  of  equity  will  com- 
pel them  to  follow  its  terms. 

Lafferty's  Estatem,  154  Pa.  St.  430;  Tunis  vs.  Heston- 

ville,  etc.  R.  R.,  149  Pa.  St.  70. 

All  proxies  should  be  in  writing,  and  need  not  be  in  any 
particular  form,  and  to  this  end  corporate  officers  may  insist 
upon  such  evidence  and  its  genuineness  before  allowing  it  to 
be  voted. 

Re  St.  Lawrence  Steamboat  Co.,  44  N.  J.  L.  529;  Re 

Indian,  etc.  Co.,  L.  R.  26  Ch.  D.  70. 

No  particular  form  of  words  is  necessary  to  constitute  a 
proxy. 

Smith  vs.  San  Francisco,  etc.  Ry.,  47  Pac.  Rep.  582 
(Cal.)  ;  see  the  form  of  proxy  in  Marie  vs.  Garrison,  13 
Abb.  N.  Cas.  210,  234. 

Proxies  need  not  be  acknowledged,  proved,  or  witnessed. 

Re  Cecil,  36  How.  Pr.  477. 

A  proxy  need  not  state  the  day  upon  which  the  election 
is  to  be  held. 

Re  Townsend,  18  N.  Y.  Supp.  905. 


PROXIES  121 

A  proxy  is  good  although  the  date  when  it  is  given  is  left 
blank  and  has  not  been  filled  in. 

Re  St.  Lawrence  Steamboat  Co.,  44  N.  J.  L.  529. 

Where  one  gave  a  proxy  to  vote  at  an  annual  election,  it 
was  held  prima  facie  evidence  that  he  was  a  stockholder  just 
before  such  election. 

Harger  vs.  McCullough,  2  Denio  119,  122. 

A  proxy  which  has  been  exercised  and  voted  upon  for 
many  years  without  renewal  was  sustained  in  Monsseaux  vs. 
Urquhart,  19  La.  Ann.  482. 

Although  a  notice  of  a  corporate  meeting,  and  proxies 
given  for  a  corporate  meeting  add  to  the  name  of  the  cor- 
poration the  place  where  it  is  located,  this  is  immaterial. 

Langan  vs.  Franklyn,  20  N.  Y.  Supp.  404;  Re  St.  Law- 
rence Steamboat  Co.,  44  N.  J.  L.  529. 

But  the  inspectors  have  no  right  to  refuse  a  vote  by  proxy 
or  to  assume  a  judicial  power  to  try  its  genuineness,  if  it  is 
apparently  executed  by  the  stockholder  and  is  regular  in  form. 
Re  Cecil,  36  How.  Pr.  477. 

Neither  the  stockholder  nor  his  proxy  can  be  compelled 
by  a  by-law  to  take  an  oath  that  the  former  is  the  owner  of 
the  stock. 

People  vs.  Tibbitts,  2  Cow.  358 ;  People  vs.  Kip.  4  Cow. 
382. 

The  by-laws  may  require  the  proxies  to  be  witnessed. 
Harben  vs.  Phillips,  L.  R.  23  Ch.  D.  14. 

Proxies  may  be  made  in  blank  and  may  be  filled  up  with 
the  party's  name  to  whom  the  proxy  is  given. 

Ex  parte  Duce,  L.  R.  13  Ch.  D.  429;  ex  parte  Lancaster, 
L.  R.  5  Ch.  D.  911 ;  Qudere  in  re  White  vs.  New  York, 
etc.  Soc.,  45  Hun.  580. 

As  to  whether  blank  proxy  may  be  filled  by  an  agent,  see 
qudere  in  re  White  vs.  New  York,  etc.  Soc.,  45  Hun.  580. 

Parol  evidence  is  admissible  to  prove  the  contents  of  a 
proxy  that  has  been  destroyed. 


122  INDUSTRIAL     CORPORATIONS 

Hay  wood  &  Pittsborough  P.  R.  Co.  vs.  Bryan,  6  Jones 
L.  (N.  C.)  82. 

A  proxy  may  fill  in  the  day  and  hour  of  meeting  if  those 
are  left  in  blank. 

Ernest  vs.  Loma,  etc.  Mines,  75  L.  T.  Rep.  317. 

Any  attempt  by  which  stockholders  of  a  corporation  seek 
through  the  power  of  an  irrevocable  proxy  to  gain  and  keep 
the  control  of  the  corporation  is  void,  as  the  proxy  is  always 
revocable,  and  all  proxies  of  that  kind  are  held  to  be  pernicious 
contracts  and  unlawful. 

Schmidt  vs.  Mitchell,  41  S.  W.  Rep.  929  (Ky.)  ;  Wood- 
ruff vs.  Dubuque,  etc.  R.  R.,  30  Fed.  Rep.  91 ;  Griffith 
vs.  Jewett,  15  Week.  L.  Bull.  419;  Vanderbilt  vs.  Ben- 
nett, 2  Ry.  &  Corp.  L.  J.  409  (Pa.)  ;  Brown  vs.  Pacific 
Mail  Steamship  Co.,  5  Blatchf.  525 ;  S.  C.,  4  Fed.  Cas. 
420 ;  Reed  vs.  Bank  of  Newburgh,  6  Paige  337 ;  People 
vs.  Nash,  11  N.  Y.  310,  315;  Fisher  vs.  Bush,  35  Hun. 
641;  Re  Germicide  Co.,  65  Hun.  606;  Cone  vs.  Russell, 
48  N.  J.  Eq.  208. 


WHO     HAS     A     RIGHT     TO     VOTE     STOCK  123 

CHAPTER    XIV. 

WHO  HAS  A  RIGHT  TO  VOTE  STOCK. 

§  126.     Registered  Owner  Right  to  Vote. 

The  question  who  has  the  right  to  vote  upon  the  stock 
of  a  corporation  always  arises  when  there  is  an  important 
meeting  to  be  held,  as  the  line  will  be  very  tightly  drawn 
by  the  interested  stockholders  seeking  to  control  the  cor- 
poration, and  the  information  necessary  to  decide  the  proposi- 
tion of  who  has  a  right  to  vote  generally  is  that  the  registered 
owner  of  the  stock  is  the  one  entitled  to  vote  that  stock. 

"The  general  rule  is  that,  as  between  the  corporation  and 
the  person  offering  to  vote,  the  right  follows  the  legal  title,  of 
which  the  certificate  and  stock-books  are  the  prima  facie  evi- 
dence. By-laws  may  establish  a  different  rule,  and  there  may  be 
special  circumstances  to  change  the  equities  as  to  individuals 
or  even  as  to  the  corporation." 

Commonwealth  vs.  Dalzell,  152  Pa.  St.  217. 

Where  the  charter  or  by-laws  provide  that  the  stock  be 
transferable  only  on  the  books  of  the  company,  the  name  of 
the  person  in  whom  the  stock  stands  on  the  books  of  the 
company  at  the  time  the  vote  is  taken  is  the  proper  person 
to  cast  the  ballot  on  that  stock. 

Morrill  vs.  Little  Falls  Mfg.  Co.,  53  Minn.  371 ;  ex  parte 

Willcocks,  7  Cow.  402. 

In  State  vs.  Ferris,  42  Conn.  560,  568,  the  court  said : — 

"The  party  who  appears  to  be  the  owner  by  the  books  of 
the  corporation  has  the  right  to  be  treated. as  a  stockholder  and 
to  vote  on  whatever  stock  stands  in  his  name." 

In  Hoppin  vs.  Buffum,  9  R.  I.  513,  the  court  said: — 

"In  case  of  a  dispute  as  to  the  right  to  vote,  the  books  of 
the  corporation  are  the  prima  facie  evidence ;  at  any  rate,  the 
corporation  can  not  be  required  to  decide  a  disputed  right. 
.  .  .  Upon  any  other  rule,  it  could  never  be  known  who 


124  INDUSTRIAL     CORPORATIONS 

were  entitled  to  vote  until  the  courts  had  decided  the  dispute." 
Allen  vs.  Hill,  16  Cal.  113;  Re  St.  Lawrence  Steamboat 
Co.,  44  N.  J.  L.  529. 

The  president  of  a  corporation  has  no  power  to  decide  who 
has  a  right  to  vote.    The  transfer  book  is  the  proper  authority. 
State  vs.  Cronan,  49  Pac.  Rep.  41  (Nev.). 

It  matters  not  whether  the  party  standing  on  the  books 
as  the  owner  is  the  nominal  or  actual  holder.  He  has  a  right 
to  vote  the  stock. 

State  vs.  Leete,  16  Nev.  242;  Smith  vs.  San  Francisco, 

etc.  Ry.,  47  Pac.  Rep.  582  (Cal.). 

The  right  to  vote  stock  is  not  extended  to  a  corporation 
who  holds  its  own  stock  nor  to  trustees  for  the  benefit  of  such 
corporation. 

Ex  parte  Holmes,  5  Cow.  (N.  Y.)  426;  Vail  vs.  Hamil- 
ton, 85  N.  Y.  453 ;  American  Railway-Frog  Co.  vs. 
Haven,  101  Mass.  398;  State  vs.  Smith,  48  Vt.  266. 

Unless  it  is  otherwise  provided  by  statute  or  by  a  con- 
tract, a  pledgee  of  stock  is  entitled  to  vote  upon  it  until  the 
title  of  the  pledgee  of  the  stock  is  perfected  or  destroyed. 

McDaniels  vs.  Manufacturing  Co.,  22  Vt.  274;  Presi- 
dent, etc.  of  Merchants  Bank  vs.  Cook,  4  Pick.  405 
(Mass.)  ;  In  re  Barker,  6  Wend.  (N.  Y.)  509;  Ex  parte 
Willcocks,  7  Cow.  (N.  Y.)  402;  Hoppin  vs.  Buffum,  9 
R.  I.  513. 

However,  a  pledgee  may  have  his  suit  in  equity  to  compel 
a  transfer  to  him  or  oblige  the  pledger  to  give  him  a  proxy 
to  vote  such  stock. 

Vowell  vs.  Thompson,  3  Cranch,  C.  C.  428;  Fed.  Cas. 
No.  17,023;  Hoppin  vs.  Buffum,  9  R.  I.  513. 

The  court  of  equity  will  not  interfere  after  the  result  of 
an  election  has  been  obtained  at  the  instance  of  the  pledger. 
He  is  too  late,  and  so  long  as  the  stock  stands  on  the  books 
of  the  company  in  the  name  of  the  pledgee  without  any 
reservation  on  the  part  of  the  pledger,  the  pledgee  will  be 
entitled  to  vote  the  stock. 

Hoppin  vs.  Buffum,  9  R.  I.  513;  In  re  Barker,  6  Wend. 


WHO    HAS    A    RIGHT    TO    VOTE    STOCK  125 

(N.  Y.)  509;  Com  vs.  Dalzell,  152  Pa.  St.  217;  25  Atl. 
535 ;  Wilson  vs.  Proprietors  Central  Bridge,  9  R.  I.  590. 
There  are  some  exceptions  to  the  rule  that  the  stock-book 
is  conclusive  evidence  of  those  who  have  the  right  to  vote. 
For  instance,  any  case  where  stock  belongs  to  the  corpora- 
tion, the  inspectors  of  election  may,  upon  the  ascertainment 
of  that  fact,  reject  the  votes,  and  they  may  inquire  into  and 
allow  the  administrator  of  the  deceased  person  to  vote. 

Schmidt  vs.  Mitchell,  41  S.  W.  Rep.  929  (Ky.)  ;  Market 
Street  Ry.  vs.  Hellman,  109  Cal.  571 ;  Re  Cape  May,  etc. 
Co.,  16  Atl.  Rep.   191    (N.  J.)  ;  Re  North   Shore,  etc. 
Ferry  Co.,  63  Barb.  556;  Wolfe  vs.  Underwood,  97  Ala. 
375;  Scholarie  Valley  R.  R.  Case,  12  Abb.  Pr.  (N.  S.) 
394;  Ex  parte  Holmes,  5  Cow.  426;  McNeely  vs.  Wood- 
ruff, 13  N.  J.  L.  352;  American  Ry.  Frog  Co.  vs.  Haven, 
101  Mass.  398;  Commonwealth  vs.  Boston,  etc.  R.  R., 
142  Mass.  146;  State  vs.  Smith,  48  Vt.  266;  Monsseaux 
vs.  Urquhart,  19  La.  Ann.  482 ;  U.  S.  vs.  Columbian  Ins. 
Co.,  2  Cranch  C.  C.  266 ;  New  England,  etc.  Ins.  Co.  vs. 
Phillips,  141  Mass.  535;  Brewster  vs.  Hartley,  37  Cal. 
15;  Farwell  vs.  Houghton,  etc.  Works,  8  Fed.  Rep.  66; 
Vail  vs.  Hamilton,  85  N.  Y.  453 ;  Ex  parte  Desdoity,  1 
Wend.  98;  Market  Street  Ry.  vs.  Hellman,  109  Cal.  571. 
The  court  of  equity  has  the  power  to  appoint  a  receiver 
to  hold  an  election  where  stock  belongs  to  parties  who  have 
been  defrauded,  and  the  court  may  go  further  and  direct  the 
receiver  how  to  vote  such  stock. 

King  vs.  Barnes,  51  Hun.  550 ;  aff'd  113  N.  Y.  655 ;  Wan- 
neker  vs.  Hitchcock,  38  Fed.  Rep.  383 ;  People  vs.  Al- 
bany, etc.  R.  R.,  55  Barb.  344,  371 ;  American  Inv.  Co. 
vs.  Yost,  25  Abb.  N.  Cas.  274. 

It  may  be  stated  as  a  general  rule  that  where  there  is  any 
trick,  cheat,  or  fraud  in  the  voting  of  stock,  or  pernicious  ad- 
vantage taken,  that  the  court  of  equity  can  set  aside  any  elec- 
tion or  any  action  taken  by  such  stockholders. 

Davidson  vs.  Grange,  4  Grant's  Ch.  Rep.   (Can.)  377. 

"This    court    unquestionably    has    the    power    to    prevent 
their  election  by  an  injunction  operating  upon  the  commission- 
ers, restraining  them  from  acting  as  inspectors  of  the  election." 
Walker  vs.  Devereaux,  4  Paige  229,  247. 


126  INDUSTRIAL     CORPORATIONS 

Where  a  fraudulent  or  illegal  election  has  "been  held,  it 
may  be  investigated  and  remedied  by  a  writ  of  quo  warranto 
and  mandamus.  The  natural  and  proper  remedy  is  by  quo 
warranto  to  test  the  title  to  office.  Such  remedy  does  not 
go  as  of  course,  that  is  to  say,  it  is  not  a  legal  right  absolute, 
but  rests  in  the  sound  discretion  of  the  court  upon  proper 
information  before  chancellor. 

State  vs.  Lehre,  7  Rich.  L.  (S.  C.)  234;  Whitcomb  vs. 
Lockerby,  59  N.  W.  Rep.  495  (Minn.)  ;  State  vs.  Cronan, 
49Pac.  Rep.  41  (Nev.). 

When  the  title  dc  jure  has  been  adjudicated,  mandamus  is 
the  proper  remedy. 

Leeds  vs.  Atlantic  City,  52  N.  J.  L.  332. 

Mandamus  is  the  proper  remedy  to  compel  illegally 
elected  directors  to  surrender  the  books  to  the  legally  elected 
directors. 

American  Ry.  Frog  Co.  vs.  Haven,  101  Mass.  398. 

Sometimes  the  remedy  by  mandamus  is  specifically  allowed 
by  statute,  such  as  the  law  in  Nevada. 

State  vs.  Cronan,  49  Pac.  Rep.  41  (Nev.). 

If,  however,  the  election  has  taken  place,  an  injunction 
will  not  lie;  otherwise,  it  will. 

Cook  on  Corporation,  vol.  2,  p.  1159,  sec.  616,  and 
authorities  there  cited. 


ORGANIZATION    OF    CORPORATION     SUGGESTIONS  127 

CHAPTER    XV. 

ORGANIZATION   OF  CORPORATION   SUGGESTIONS. 

§  127.     To  Form  Corporation  One  Thing. 

To  form  a  corporation  under  general  law  is  to  comply  with 
the  "conditions  precedent"  required  in  the  laws  under  which 
incorporation  is  sought,  as  was  said  by  the  Supreme  Court 
of  California: — 

"Under  our  system  of  incorporation  through  general  laws, 
a  corporation  dc  jure  is  an  artificial  body  created  by  operation 
of  law  upon  the  execution,  filing,  and  certification  of  certain 
written  instruments  by  persons  desirous  of  incorporating, 
and  certain  public  officers  in  accordance  with  the  provisions 
of  such  general  laws. 

"When  these  instruments  are  executed,  filed,  and  certified 
as  required,  the  corporation  eo  in  stantc  comes  under  legal 
existence. 

"Its  corporate  life  is  then  complete,  without  any  further 
act  or  user;  and  it  can  be  destroyed  only  by  some  subsequent 
act  of  forfeiture ;  the  corporation  is  then  regularly  formed.  It 
may  be  conceded  that  a  substantial  compliance  is  sufficient, 
but  it  is  clear  that  a  necessary  prerequisite  can  not  be  omitted." 
Martin  vs.  Deetz,  102  Cal.  55. 

§  128.     Organization  Definition. 

To  organize  a  corporation  is  quite  a  different  thing  to 
its  formation.  Organization  is  to  systematize,  to  put  into 
working  order,  to  elect  its  officers,  its  board  of  directors, 
adopt  its  by-laws,  its  seal,  its  certificates,  and  to  arrange  in 
order  for  the  normal  exercise  of  its  appropriate  functions  or 
exercise  of  its  powers. 

To  organize  a  corporation  "ordinarily  signifies  the  choice 
and  qualification  of  all  necessary  officers  for  the  transaction 
of  the  business  of  the  corporation." 

Black's  Law  Diet.,  856;  38  Conn.  66;Hana  vs.  Inter- 
national Petroleum  Co.,  23  Ohio  St.  622 ;  Compare  Vt. 
Cent.  R.  R.  Co.  vs.  Clayes,  21  Vt.  30;  Stoops  vs.  Greens- 


128  INDUSTRIAL     CORPORATIONS 

burgh,  etc.  Plank  Road  Co.,  10  Ind.  47;  Bronwer  vs. 
Appleby,  1  Sand.  158. 

To  descend  more  particularly  to  what  it  takes  to  organize 
a  corporation  before  it  can  have  a  de  facto  existence,  the  Su- 
preme Court  of  California  said,  where  there  are — 

"no  meetings  of  the  members  or  trustees,  no  election  of  of- 
ficers, no  by-laws  adopted,  no  certificate  of  shares  or  member- 
ship issued,  no  seal  adopted  or  used,  no  record  or  minutes 
kept — in  short  no  corporate  acts  of  any  character  performed — 
does  not  form  a  de  facto  corporation  or  there  is  none  to  act." 
Wall  vs.  Mines,  130  Cal.  27 ;  Martin  vs.  Deetz  Supra. 

§  129.     Organization  Mere  Matter  of  Corporate  Business. 

At  the  civil  or  Roman  law  charters  did  not  have  to  emanate 
or  have  the  sanction  of  the  prince.  After  the  incorporation 
was  adopted  as  a  plan  or  system  of  business  by  the  English, 
the  consent  of  the  king  was  made  a  necessary  part  of  it, 
as  everything  was  supposed  to  come  from  the  king.  It  was 
made  the  king's  prerogative. 

Sharswood's  Blackstone  "Commentaries,"  vol.  1,  p.  471. 

Corporations  did  not  depend  on  the  statutes  of  England 
for  their  rights  to  do  business,  but  on  their  immemorial  cus- 
toms and  usages  and  the  common  law  and  their  by-laws, 
which  latter  were  their  own  statutes. 

Sharswood's  Blackstone  "Commentaries,"  vol.  1,  p.  477. 

At  the  common  law  the  corporation  upon  its  erection 
had  inalienable  rights  incident  and  necessary  to  its  existence 
which  covered  every  conceivable  transaction,  bounded  and 
co-extensive  with  the  right  of  a  natural  person. 

Sharswood's    Blackstone   "Commentaries,"   vol.    1,   pp. 
475,  476. 

This  is  necessarily  so,  as  the  corporation  was  originated 
for  the  very  purpose  of  duplicating  and  retaining  rights  of  per- 
sons and  things  and  carrying  them  on  with  like  force  and 
effect  perpetually,  the  same  as  a  natural  person. 

Sharswood's    Blackstone   "Commentaries,"    vol.    1,   pp. 

467,  468. 


ORGANIZATION    OF    CORPORATION     SUGGESTIONS  120 

To  have  perpetual  succession,  to  make  contracts,  to  own 
property,  to  make  by-laws,  and  to  do  every  other  thing  nec- 
essary to  carrying  on  the  business  of  the  corporations  were 
alike  incidents  and  powers  necessary  and  inseparable  to  every 
private  corporation,  both  at  civil  and  common  law. 

It  will  be  noted  that  all  these  inherent  rights  or  powers, 
and  more,  are  enumerated,  extended,  recognized,  and  granted 
by  the  laws  of  Arizona  Territory. 

The  election  of  directors  is  an  inherent  right  of  every 
corporation. 

Hurlbut  vs.  Marshall,  62  Wis.  590;  22  N.  W.  852. 

The  election  of  directors  followed  as  a  matter  of  course 
the  formation  and  adoption  of  by-laws,  as  the  by-laws  pre- 
scribe the  duties  of  all  the  officers  of  the  corporation,  and  the 
directors  being  only  officers  or  agents  of  the  corporation,  it 
follows  as  a  logical  deduction  that  the  election  of  officers 
should  follow  after  the  law  defining  the  rights  of  such  officers. 

We  have  seen  that  the  charter  or  Articles  of  Incorporation 
of  a  corporation  is  a  legislative  contract  to  be  interpreted  like 
any  other  contract. 

A  by-law  is  only  a  stockholder's  contract  with  the  cor- 
poration acting  in  the  capacity  of  employing  an  agent  for  the 
corporation. 

The  by-laws  are  the  statutes  of  the  little  republic  or  cor- 
poration, passed  by  the  stockholders  for  its  regulation  and 
control.  The  power  of  the  stockholder  to  pass  by-laws  for 
the  corporation  is  analogous  to  the  power  of  the  Legislatures 
to  pass  laws  for  the  State;  the  one  is  inherent  or  inalienable 
right,  while  the  other  is  the  police  power  of  the  State.  The 
Supreme  Court  of  the  United  States,  speaking  of  the  police 
power  of  the  State,  said : — 

"It  is  true  that  the  Legislature  which  secures  to  all  pro- 
tection in  their  rights,  and  the  equal  use  and  enjoyment  of 
their  property,  embraces  an  almost  infinite  variety  of  sub- 
jects. Whatever  affects  the  peace,  good  order,  morals,  and 
health  of  the  community  comes  within  its  scope ;  and  every 
one  must  use  and  enjoy  his  property  subject  to  the  restrictions 
10 


130  INDUSTRIAL     CORPORATIONS 

which  such  legislation  imposes.  What  is  termed  the  'police 
power'  of  the  State,  which,  from  the  language  often  used  re- 
specting it,  one  would  suppose  to  be  an  undefined  and  irre- 
sponsible element  in  government,  can  only  interfere  with  the 
conduct'of  individuals  in  their  intercourse  with  each  other, 
and  in  the  use  of  their  property,  so  far  as  may  be  required  to 
secure  these  objects." 
94  U.  S.  145. 

The  one  is  subservient  to  the  constitution's  laws  and  char- 
ter, while  the  other  is  subservient  to  the  constitution  only. 
As  the  constitution  is  the  measure  of  the  police  power,  to  pass 
legislative  enactments  of  the  State,  so  is  the  charter  or  Ar- 
ticles of  Incorporation  the  measure  of  the  stockholders'  power 
to  pass  by-laws  for  the  regulation  and  control  of  the  cor- 
poration in  the  business  designated  in  the  charter  or  Articles 
of  Incorporation.  As  the  republic  is  for  the  betterment  of 
society  at  large,  so  the  incorporation  is  for  the  betterment  of 
the  interests  of  the  incorporators  in  the  business  incorporated. 

Just  precisely,  then,  the  corporation  by  its  stockholders 
has  the  inherent  right  to  make  its  by-laws,  a  fortiori,  have 
they  the  right  to  elect  officers  and  agents  to  carry  out  those 
by-laws,  both  of  which  are  mere  business  matters  of  the  cor- 
poration to  be  attended  to  by  the  stockholders  for  the  cor- 
poration, with  neither  of  which  has  the  States  any  concern 
or  interest. 

Some  of  the  States  require  by  statutes  that  the  incorpora- 
tion be  organized  within  the  State  of  its  creation  ;  this  they 
have  the  undoubted  power  to  do,  yet  such  limitation  on  the 
corporation  is  an  arbitrary  usurpation  of  the  inherent  and 
time  immemorial  rights  and  customs  of  the  private  business 
of  corporations  that  results  in  no  benefit  to  the  State,  and  in- 
terferes materially  with  the  corporate  affairs.  Especially  is 
this  true  as  to  all  those  living  in  one  State  desiring  to  in- 
corporate in  another.  It  is  a  serious  embargo  on  incorpora- 
tors, inflicting  loss  of  time,  loss  of  property,  with  no  beneficial 
result. 

The  power  to  make  by-laws  may  be  delegated  to  the  board 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  131 

of  directors  by  the  stockholders  or  it  may  be  provided  in  the 
charter. 

Clark  on  Corporations,  455 ;  Cahill  vs.  Insurance  Co., 

2  Doug.  (Mich.)  124. 

Majority  of  directors  may  make  the  by-laws  in  such  case. 
Cahill  vs.  Ins.  Co.  Supra. 

The  conclusion  is  reached  beyond  any  question  that  under 
the  civil  law  organization  was  a  matter  of  business  custom 
and  usage  of  the  corporation  with  which  the  Roman  States 
had  nothing  to  do  nor  made  no  effort  to  interfere  with,  and 
was  effected  wherever  the  convenience  of  the  incorporators 
dictated. 

That  under  the  common  law  of  England  the  rule  was  the 
same,  and  organization  was  left  to  the  immemorial  customs 
and  usages  of  the  corporation,  as  such  system  was  adopted 
from  the  civil  law,  that  the  common  law  becoming  a  part 
of  our  system  of  jurisprudence,  and  likewise  the  corporation, 
the  usages  and  customs  of  the  corporation  followed  into  our 
system  of  law  for  a  republic  not  unlike  the  civil  law,  and  the 
right  to  organize  the  corporation  is  a  mere  matter  of  busi- 
ness, under  our  law,  of  the  corporation  that  may  be  done 
anywhere,  the  statute  of  the  State  does  not  inhibit. 

§  130.     Organization  Meetings  Where  Held. 

It  is  the  custom  of  corporations  where  the  statute  does 
inhibit  the  holding  of  meetings  outside  of  the  State,  to  hold 
their  meetings  for  the  transaction  of  their  business  outside 
of  the  State  of  their  creation  when  they  like ;  especially  is 
this  true  where  incorporators  have  sought  incorporation  in  a 
State  or  Territory  foreign  to  that  of  their  domicile.  It  is 
the  invariable  practice  of  thousands  of  corporations  to  hold 
all  of  their  meetings  where  they  reside,  or  at  home,  or  where 
they  may  designate  in  the  charter  or  by-laws 

The  reason  given  in  some  of  the  old  decisions  of  the 
States,  why  organization  and  other  meetings  could  not  be 
held  without  the  State,  was  that  the  corporation  had  no  legal 
existence  outside  of  the  State  of  its  creation,  and  that  it  must 


132  INDUSTRIAL     CORPORATIONS 

be  organized  within  the  atmosphere  of  the  law  of  its  creation, 
does  not,  in  the  absence  of  statute  requiring  such  meeting 
within  the  State,  appear  to  be  of  any  substance  or  to  have 
any  weight.  Why  should  the  State  be  concerned  about  the 
business  of  a  corporation  whether  it  was  ever  organized  or 
not,  or  whether  it  ever  made  a  contract  of  any  kind?  Cor- 
porations act  by  and  through  natural  persons,  and  in  no  other 
way.  The  corporation  can  do  no  act  except  through  some 
natural  person.  Its  business  transactions  necessarily  depend 
not  on  the  law  of  its  creation,  but  on  its  stockholders  and 
its  other  agent;  wherever  they  are  or  go,  there  the  corpora- 
tion is  in  full  force  for  the  transaction  of  its  business,  it  mat- 
ters not  of  what  kind  or  character  it  may  be.  Why  should 
one  piece  of  corporate  business  be  valid  without  the  State, 
and  another  of  equal  and  no  greater  importance  be  invalid? 
The  law  goes  no  further  than  to  erect  it  in  conjtinction  with 
the  incorporators ;  further  than  that  the  law  does  not  go  nor 
can  it  go.  The  balance  of  the  functions  or  business  must 
be  carried  out,  if  at  all,  by  the  agents  of  the  corporation. 
The  moment  it  is  conceded  that  a  corporation  can,  througli 
its  agents,  migrate  for  business  purposes  to  another  State, 
it  had  as  well  be  conceded  that  wherever  an  act  of  the  cor- 
poration is  dependent  solely  upon  the  corporate  agent  then 
and  there  that  act  may  be  done  wherever  it  is  for  the  best 
interests  of  the  corporation  to  have  it  done,  whether  it  be 
within  or  without  the  State  of  its  creation.  Any  other  rule 
would  do  violence  to  business  and  common  sense. 

Upon  the  question  of  meetings,  Mr.  Morawetz  says: — 
"There  is  no  objection  to  a  meeting  held  in  a  foreign 
jurisdiction,  provided  all  the  shareholders  give  their  consent. 
And  in  the  absence  of  an  express  statutory  prohibition,  there 
appears  to  be  no  reason  why  the  shareholders  in  an  ordinary 
business  corporation  should  not  provide  in  their  articles  of 
association  that  meetings  may  be  called  at  convenient  places 
outside  of  the  State  under  whose  laws  the  company  is  formed." 

"No  valid  objection  can  be  made  to  a  stockholders'  meet- 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  133 

ing  held  in  a  foreign  jurisdiction,  provided  all  the  sharehold- 
ers give  their  consent  to  such  meeting  or  ratify  its  result." 
Handley  vs.  Stutz,  41  Fed.  Rep.  531. 

Upon  the  question  of  meetings,  the  rule  has  been  evolved 
by  the  Supreme  Court  of  the  I'nited  States,  which  practically 
leaves  no  room  for  discussion  ;  it  effectually  pushes  aside  all 
the  State  decisions  on  the  subject  of  meetings  of  any  char- 
acter, as  follows : — 

"Nor  were  the  proceedings  of  such  meetings  any  less 
binding  upon  those  participating  in  it  by  reason  of  the  fact 
that  it  was  held  outside  of  the  boundaries  of  the  State  under 
the  laws  of  which  the  company  was  incorporated.  By  act 
of  the  Kentucky  Legislature  it  is  provided  that  all  election 
of  directors  and  other  officers  by  private  corporations  shall 
be  held  within  the  territorial  limits  of  the  State  of  Kentucky, 
and  that  any  such  election  held  outside  of  Kentucky  shall  be 
void.  Beyond  the  election  of  officers,  however,  there  is  no 
statutory  restriction  of  corporate  action  to  the  limits  of  the 
State,  and  in  the  absence  of  such  inhibition,  the  proceedings 
of  such  meeting  would,  with  regard  to  directors'  meetings, 
be  binding  upon  all  those  participating  in  it  as  well  as  upon 
those  acting  upon  the  faith  of  its  validity  or  receiving  the 
stock  authorized  to  be  issued  at  said  meeting.  It  is  true  that 
there  are  cases  holding  that  stockholders'  meetings  can  not 
be  legally  held  outside  of  the  home  State  of  the  corporation, 
but  the  question  has  generally  arisen  where  a  majority  pres- 
ent had  attempted  by  their  action  to  bind  a  dissenting  minor- 
ity, or  had  taken  action  prejudicial  to  the  rights  of  third  per- 
sons. Indeed,  so  far  as  we  know,  the  authorities  are  uniform 
to  the  effect  that  the  action  taken  at  such  meeting  was  bind- 
ing upon  those  who  participated  in  or  partook  of  the  benefits 
of  them.  In  this  case  the  meeting  was  attended  by  all  the 
stockholders  but  two,  who  were  present  by  proxy. 

"The  vote  increasing  the  stock  was  unanimous,  and  it 
uoes  not  lie  in  the  mouth  of  those  who  participated  in  this 
act,  or  received  the  stock  voted  at  this  meeting,  to  question 
its  validity." 

Handley  vs.  Stutz,  139  U.  S.  417. 

The  converse  of  the  proposition  respecting  stockholders' 
meetings  for  the  election  of  directors  would  be  equally  true 
that,  if  it  was  not  inhibited  by  statute,  then  stockholders  can 


134  INDUSTRIAL     CORPORATIONS 

hold  any  meeting  out  of  the  State  of  formation  with  like  force 
or  effect  as  within  the  State. 

Certainly  the  business  corporations  are  holding  their  ini- 
tial meetings,  forming  Articles  of  Incorporation,  signing  and 
acknowledging  them,  all  without  the  State,  and  as  soon  as 
the  articles  are  filed  and  fees  all  paid,  in  a  foreign  State,  they 
hold  the  organization  meetings  and  organize  the  corporation 
for  business  and  all  other  meetings  at  their  home  with  perfect 
impunity.  This  is  beyond  a  doubt  the  general  practice. 
Who's  injured?  Who's  wronged?  Who  has  the  right  to  com- 
plain? There  certainly  must  be  some  wrong  or  injury,  or 
there  is  no  right  of  complaint  from  any  source.  It  certainly 
would  not  lie,  as  was  said  in  Handley  vs.  Stutz  supra: — 
"in  the  mouth  of  those  who  participated  in  this  act  or  received 
the  stock  voted  at  this  meeting  to  question  its  validity." 

§  131.     Organization  Meeting  Business  to  be  Transacted. 

Having  settled  the  place  where  stockholders  can  hold 
their  organization  meetings,  and  that  the  business  to  be 
transacted  is  the  mere  business  of  the  corporation,  that  does 
not  concern  the  State  in  any  particular,  unless  the  Legisla- 
ture has  enacted  statutes  with  reference  thereto,  it  now  be- 
comes necessary  to  descend  to  the  particulars  of  the  business 
of  the  organization  meeting. 

However,  before  the  stockholders  meet,  the  secretary  pro 
tern  of  the  initial  or  formation  meeting,  and  who  has  the  min- 
utes of  the  proceedings  up  to  the  date  of  the  organization 
meeting,  should  give  each  stockholder  or  incorporator  notice 
of  such  meeting  in  order  to  secure  a  full  attendance,  either 
in  person  or  by  proxy.  (An  incorporator's  interest  may  be 
represented  by  proxy  even  before  stock  are  issued.)  The  no- 
tice should  state  the  time,  place,  and  the  purpose  of  the  or- 
ganization meeting. 

§  132.     Notice  of  Organization  Meeting,  No.  5. 

St.  Louis,  Mo.,  March  2,  1904. 
Mr.  B., 

St.  Louis,  Mo. 
Dear  Sir:  You  are  hereby  notified  that,  pursuant  to  the  call 


ORGANIZATION     OF     CORPORATION"     Sl'CCRSTIONS  135 

of  the  president  pro  tern,  the  incorporators  of  the  "Leap  to 
Light  Mining  Company"  will  meet  at  the  office  of  John  Jones, 
25  Canal  St.,  St.  Louis,  Mo.,  on  the  10th  day  of  March,  A.  D. 
1904,  at  2  o'clock  P.  M.,  to  consider  the  essentials  of  the 
organization  of  the  "Leap  to  Light  Mining  Company,"  and 
to  transact  any  unfinished  business  that  may  come  before  the 
meeting.  Yours  very  truly, 

C.,  sec.  pro  tem. 

Notices  of  meeting  should  always  contain  three  things, — 
time,  place,  and  purpose  of  the  meeting.  As  the  organization 
meeting  would  possibly  be  attended  fully,  no  question  what- 
ever would  arise  in  regard  to  it,  but  any  other  meetings,  as 
the  stockholders'  annual  meeting,  or  in  other  special  meet- 
ings, it  is  a  very  important  notice,  and  the  secretary  should 
always  be  very  particular  to  see  that  each  and  every  one  had 
a  proper  notice.  Sometimes,  by  statute,  it  is  necessary  to 
publish  these  notices  in  a  newspaper  as  well  as  to  send  them 
or  deliver  them  to  the  members  of  the  company.  In  such 
case,  each  and  every  requirement  should  be  particularly  com- 
plied with,  as  a  failure  would  furnish  a  groundwork  for  any 
one  dissatisfied  with  the  proceedings  of  the  meeting  to  set  the 
whole  proceeding  aside. 

Ordinarily,  to  be  certain,  the  stockholders  meet  and  sign 
a  waiver  of  notice,  which  may  be  to  the  effect  that  they 
waive  the  written  notice  of  the  time,  place,  and  purpose  of  the 
organization  meeting. 

§  133.     Notice  and  Waiver  of  Organization  Meeting,  Form 
No.  6. 

We,  the  subscribers,  being  all  the  stockholders  named  in 
the  Articles  of  Incorporation  of  "The  Leap  to  Light  Mining 
Company,"  hereby  waive  notice  of  the  time,  place,  and  pur- 
pose of  the  first  meeting  of  said  company,  and  fix  the  10th 
day  of  March,  A.  D.  1904,  2  o'clock  P.  M.,  as  the  time,  and 
the  office  of  John  Jones,  25  Canal  St.,  in  St.  Louis,  Mo.,  as 
the  place  of  the  first  meeting  of  said  company,  and  certify  the 
purpose  of  this  meeting  is  to  organize  the  above  corporation. 

(Signed)         Mr.  A.        Mr.  C. 
Mr.  B.        Mr.  D. 
Mr.  E. 


136  INDUSTRIAL     CORPORATIONS 

This  formality  may  and  usually  is  all  dispensed  with  in 
ordinary  business  corporations,  and  is  necessary  only  to  keep 
up  records,  which  is  preferable. 

The  secretary  in  his  minutes  usually  designates  who  are 
present,  which  would  appear  to  practically  be  sufficient.  . 

The  order  of  business  or  program  of  the  corporation  is 
usually  prepared  not  only  for  the  organization  meeting,  but 
for  all  other  meetings,  and  handed  to  the  president  by  the 
secretary. 

The  president  pro  tern  and  secretary  pro  tem  that  have 
acted  all  along  for  the  stockholders  will  take  charge  of  the 
meeting,  or  open  the  business  of  the  meeting,  by  calling  the 
house  to  order  and  stating  the  purpose  of  the  meeting. 

§  134.     The  Purpose  of  the  Meeting  is  to  Organize  the  Cor- 
poration for  Business,  Form  No.  7. 

The  order  of  business  to  be  transacted  will  be  about  as 
follows : — 

1.  Presentation  of  the  charter  or  Articles  of  Incorpora- 
tion. 

2.  Adoption  of  by-laws. 

3.  Election  of  directors. 

4.  Election  of  the  president  and  other  officers,  if  that  is  de- 
sired to  be  done  by  the  stockholders. 

5.  Adoption  of  a  seal  by  the  corporation. 

6.  Exchange  of  property  for  stock. 

7.  Books  of  the  corporation. 

8.  Adoption  of  form  of  stock  certificate. 

ELECTION     OF     INSPECTORS     AT     INSPECTION     MEETING. 

§  135.     Some  Companies  Have  Inspector  of  Elections. 

On  motion  of  Mr.  D.,  Mr.  E.  was  elected  inspector  of  elec- 
tions. Thereupon,  on  motion  of  Mr.  C.,  the  stockholders  pro- 
ceeded to  election  by  ballot  to  vote  for  a  board  of  directors 
for  the  ensuing  year. 

If  the  board  of  directors  has  been  designated  in  the  Ar- 
ticles of  Incorporation,  then  the  election  of  the  board  of 


ORGANIZATION     OF     CORPORATION     SUGGESTIONS  137 

directors  at  the  organization  meeting  of  the  stockholders 
would  necessarily  be  dispensed  with,  but  it  rarely  ever  hap- 
pens that  a  board  of  directors  is  required  to  be  designated 
in  the  charter  or  articles,  hence  that  is  one  of  the  matters  that 
properly  comes  before  the  organization  meeting  of  the  stock- 
holders. 

BY-LAWS. 

§  136.     Permanent  Rules  of  Corporation. 

The  by-laws  also  is  a  paper  which  are  the  permanent 
rules  or  enactments  of  the  corporation.  They  descend  to  the 
detail  work  of  the  company,  and  are  intended  to  follow  after 
and  conform  to  the  charter.  They  should  be  prepared  with 
due  care  under  the  law  where  the  charter  is  obtained,  so  as 
not  to  conflict  with  either  the  charter  or  the  general  law. 
They  should  also  be  reasonable  and  fair,  and  then  should  be 
strictly  observed.  By-laws  are  usually  prepared  beforehand 
by  the  attorney,  or  whoever  prepares  the  charter,  and  then 
submitted  to  the  stockholders  at  their  first  meeting  for  adop- 
tion. The  stockholders  can  adopt  the  by-laws  section  by  sec- 
tion, or  article  by  article,  in  whatever  form  they  are  prepared, 
or  they  may,  after  their  reading,  be  sufficiently  satisfied  with 
them  to  adopt  them  as  a  whole.  The  by-laws  may  be  amended 
from  time  to  time,  or  new  ones  made  to  meet  the  necessity 
of  the  occasion. 

§  137.  Secretary's  Minutes  of  Permanent  Organization 
Meeting,  Form  No.  7. 

Minutes  of  the  first  meeting  of  the  stockholders  may  be 
in  the  following  form  : — 

A  meeting  of  the  stockholders  of  "The  Leap  to  Light 
Mining  Company"  was  held  on  the  10th  day  of  March,  A.  D. 
1904,  at  2  o'clock  P.  M.,  at  the  office  of  John  Jones,  25  Canal 
St.,  City  of  St.  Louis,  and  State  of  Missouri.  All  of  the  in- 
corporators  or  subscribers  to  stock  named  in  the  charter  or 
Articles  of  Incorporation  were  present;  to  wit:  Mr.  A.,  Mr. 
B.,  Mr.  C,  Mr.  D.,  and  Mr.  E.  Mr.  A.  called  the  meeting  to 
order.  On  motion  of  Mr.  C.,  seconded  by  Mr.  D.,  Mr.  A.,  the 
chairman  pro  tem,  was  unanimously  elected  permanent  chair- 


138  INDUSTRIAL     CORPORATIONS 

man  of  the  meeting,  and  Mr.  B.,  secretary,  whereupon  all  the 
members  or  stockholders  or  incorporators  signed  notice  of  a 
waiver  of  the  time,  place,  and  purpose  of  the  meeting. 

Notice  was  presented  to  the  meeting  by  the  chairman  to 
be  filed  and  spread  upon  the  minutes.  The  secretary  then 
reported  to  the  meeting  that  the  charter  or  the  Articles  of 
Incorporation  of  the  company  had  been  duly  recorded  in  the 
office  of  the  recorder  of  Mericopa  Co.,  Ariz.,  on  the  5th  day 
of  March,  A.  D.  1905,  in  Book  25  of  Records  of  Corporation, 
page  200,  and  after  being  so  recorded,  a  certified  copy  was 
properly  filed  in  the  office  of  the  territorial  auditor,  and  that 
all  requirements  of  liw  had  been  complied  with  to  effect  the 
incorporation  of  the  company. 

The  charter  was  then  presented  and  read  to  the  meeting, 
and,  on  motion  of  Mr.  E.,  the  same  was  ordered  filed  and 
the  secretary  was  ordered  to  copy  the  same  into  the  minute 
records  of  the  company. 

Thereupon  the  secretary  reported  that  the  by-laws  had 
been  prepared  and  were  in  his  possession,  whereupon  the 
chairman  ordered  the  same  to  be  read  to  the  meeting. 

After  hearing  the  by-laws  read,  it  was  moved  by  Mr.  C. 
that  the  by-laws  be  read  and  adopted  chapter  by  chapter. 
Motion  carried.  By-laws  read  and  adopted. 

§  138.     Directors. 

The  directors  of  a  corporation  are  one  of  the  important 
factors  of  the  corporation,  and  their  make-up  should  be  of 
able  and  close-calculating  individuals,  as  success  or  failure  of 
the  enterprise  usually  depends  upon  the  wisdom  of  the  board 
of  directors.  The  number  of  directors  is  sometimes  fixed  by 
a  statute  or  charter,  but  usually  by  the  by-laws.  A  small 
board  of  directors  is  preferable,  as  they  can  act.  more  rapidly 
and  promptly  in  any  matter  that  requires  their  attention. 

If,  under  the  law  where  the  corporation  is  to  be  formed, 
it  is  required  that  the  board  of  directors  shall  be  designated 
in  the  charter,  then  it  may  be  one  of  the  essential  ingredients 
to  be  passed  upon  at  the  formation  meeting;  otherwise  it 
would  be  left  as  a  matter  of  business  for  the  stockholders, 
and  more  properly  come  up  as  a  by-law  matter  when  the 
stockholders  would  pass  upon  the  by-law  matter  at  the  or- 
ganization meeting. 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  139 

An  election  was  then  held,  and  the  inspector  reported 
that  the  following  persons  or  stockholders  of  the  company 
had  been  elected  directors  by  a  vote  of  the  whole  number 
of  shares  held  by  the  stockholders ;  to  wit : — 

Mr.  A.,  Director. 

Mr.  C,  Director. 

Mr.  E.,  Director. 

§  139.    President. 

The  election  of  the  president  at  the  organization  meeting 
is  a  proper  matter  for  the  stockholders,  but  it  is  just  as  proper 
to  leave  it  to  be  done  by  the  board  of  directors.  It  is  a  matter 
of  discretion  with  the  stockholders  what  they  will  or  will  not 
do  in  the  matter  of  electing  a  president. 

The  minute  may  be  that  Mr.  B.  nominated  Mr.  C.  for 
president,  and  upon  a  return  of  the  ballots  by  the  inspectors, 
Mr.  C.  was  unanimously  elected  president  of  the  company. 

Or  the  minute  may  be  that  the  election  of  president  was 
left  to  the  board  of  directors  to  determine. 

§  140.     Seal. 

Moved  and  seconded  that  the  secretary  be  instructed  to 
procure  an  aluminum  seal,  circular  in  form,  with  the  words, 
"Incorporated  in  1905,"  in  the  center,  with  the  name  of  the 
company  upon  the  face  and  within  the  outer  rim,  same  as 
indicated  by  the  stockholders  at  the  formation  meeting. 

§  141.     Exchange  of  Property. 

Moved  and  carried  that  the  stockholders  here  order  the 
directors  to  assess  the  capital  stock  twenty-five  per  cent  of 
the  whole  amount  of  each  share  taken,  payable  in  cash  to 
the  treasurer  within  thirty  days  after  the  election  and  quali- 
fication of  the  treasurer. 

If  any  other  exchange  of  property  is  to  take  place  for  the 
stock,  the  stockholders  can  authorize  it  to  be  done  by  a 
resolution  of  the  incorporators  or  stockholders  acting  at  the 
meeting. 

§  142.     Books. 

Moved  and  carried  that  the  secretary  procure  for  the  use 
of  the  corporation  the  usual  and  regular  books  used  by  cor- 


140  INDUSTRIAL     CORPORATIONS 

porations  in  keeping  a  record  of  all  their  meetings  and  for 
the  record  of  their  business  transactions. 

§  143.     Which  Books  Will  Be  About"  as  Follows. 

1.  Universal  record,  where  the  Articles  of  Incorporation, 
by-laws,  and  names  of  the  stockholders  will  be  copied  and 
kept,    minutes,    etc.,    of    all    meetings,    and    all    other    doings 
of  the  corporation  that  necessitate  a  record  of  the  corporate 
working  machinery. 

2.  Stock-book,  in  which  are  the  blank  shares  of  stock. 

3.  Transfer  book  is  where  a  record  of  the  transfer  of  shares 
is  kept,  when  shares  are  sold  or  disposed  of  and  new  shares 
are  issued  to  the  purchaser. 

4.  Journal,   ledger,   etc.,   where   all   the   business   accounts 
of  the  company  are  kept. 

After  which,  "on  motion"  of  Mr.  E.,  the  meeting  was  ad- 
journed to  meet  at  the  same  place  on  the  12th  day  of  March, 
A.  D.  1905. 

(Signed)         Mr.  A.,  Chairman, 
Mr.  B.,  Secretary, 
§  144.     Signing  the  Minutes. 

When  the  minutes  are  written  up,  they  should  be  signed 
by  the  secretary,  and  it  is  customary  for  the  president  also 
to  sign  the  minutes,  as  many  disputes  may  thereafter  arise 
in  regard  to  the  minutes,  and  if  they  are  thus  authenticated, 
it  may  be  that  many  vexed  questions  may  be  thus  avoided. 
See  Roberts'  Rules  of  Order,  pp.  126,  162-164. 

The  minutes  of  the  former  meeting,  having  been  approved 
and  signed,  become  a  part  of  the  records  of  .the  corporation, 
which  should  be  carefully  preserved  in  such  form  as  to  be 
ready  and  accessible  at  all  times  to  any  stockholder  or  officer. 
The  purpose  of  having  the  trend  of  the  action  of  the  incor- 
porators  so  kept  is  to  protect  the  members  at  all  times  from 
any  unexpected  action  or  unfair  dealing;  also  to  preserve  the 
minutes  so  that  in  any  legal  contest  that  may  thereafter 
arise,  the  minutes  may  be  used  not  only  to  refresh  the  memory 
of  those  who  participated  in  the  meeting,  but  also  to  be  used 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  141 

as  evidence  for  the  company  or  any  member  of  the  company. 
These  suggestions  are  only  intended  as  directory-,  as  it 
is  optional  with  the  stockholders  what  plan  they  will  pursue. 
The  parliamentary  law  of  the  country  applicable  to  all  assem- 
blies is  always  accessible  wherein  full  instructions  for  all 
deliberative  assemblies  are  found.  Organizing  a  corporation 
is  nothing  less  than  any  other  assembly,  such  as  a  Legislature 
or  council  of  a  city,  only  it  has  nothing  of  a  public  nature  in  it. 

§  145.     Corporation  Republics  at  Common  Law. 

Three  formed  a  corporation  in  the  Roman  law.  They  were 
republics  in  and  of  themselves ;  they  were  called  bodies  politic  : 
they  could  not  pass  laws  that  contravened  the  laws  of  the 
land,  nor  did  they  look  to  the  laws  of  the  land  for  any  au- 
thority to  contract  or  perform  any  other  act  necessary  to 
carry  out  the  purpose  of  the  corporation.  It  required  no  act 
of  sovereignty  to  bring  them  into  existence ;  no  laws  were 
passed  for  their  regulation,  nor  did  the  State  have  anything 
to  do  with  their  close.  They  rested  on  their. time-immemorial 
usages  and  customs  for  their  beginning,  their  existence,  and 
their  end,  provided  they  were  not  contrary  to  the  law. 

"The  legal  attributes  of  a  corporation  have  been  worked 
out  with  great  fullness  and  ingenuity  in  the  English  law,  but 
the  conception  has  been  taken,  full-grown  from  the  law  of 
Rome." 

Werner  Encyclopedia  Britannica,  vol.  VI,  p.  432. 

§  146.     English  Adopted  Roman  Law. 

"When  English  lawyers  come  to  deal  with  such  societies, 
the  corporation  law  of  Rome  admitted  of  easy  application. 
Accordingly,  in  no  department  of  our  law  have  we  borrowed 
so  copiously  and  so  directly  from  the  civil  law." 

Werner  Encyclopedia  Britannica,  vol.  VI,  p.  432. 

AT     THE     COMiMON     LAW     OF     ENGLAND. 

"The  charter  of  a  corporation  is  regarded  as  being  of  the 
nature  of  a  contract  between  the  king  and  the  corporation. 
It  will  be  construed  more  favorably  for  the  crown  and  more 
strictly  as  against  the  grantee.  It  can  not  alter  the  law  of  the 


142  INDUSTRIAL     CORPORATIONS 

land,  and  it  may  be  surrendered,  so  that  if  the  surrender  is 
accepted  by  the  crown  and  enrolled  in  chancery,  the  corpora- 
tion is  thereby  dissolved." 

Werner  Encyclopedia  Britannica,  vol.  VI,  p.  433. 

The  making  of  by-laws,  the  election  of  directors,  or  ap- 
pointment of  any  agent  for  the  corporation,  are  contracts  one 
and  all. 

These  original  powers  threading  through  the  history  of 
the  corporate  invention  come  from  the  earliest  existence  down 
through  the  common  law  of  England  to  the  present  time, 
and  found  in  most  all  of  the  statutes. 

The  source  of  corporations  originally  within  the  incor- 
porators,  molded  into  a  prerogative  of  the  king  by  the  plastic 
English  for  their  emolument,  but  now,  by  act  of  Parliament, 
similiar  to  the  statutes  of  the  States  of  our  Union. 

All  show  the  freedom  of  right,  of  origin,  and  of  contract 
in  organizing  and  contracting  corporate  business. 

It  is  not  more  important  to  know  what'  the  corporation 
has  the  right  to  do  as  to  know  just  how  to  do  it. 

In  all  such  cases  the  statute  of  the  particular  State  must 
be  looked  to,  to  see  just  how  far  the  statute  has  interfered 
with  common  incidents  to  corporation  by  the  Legislatures. 

It  is  in  some  quarters  thought  essential  that  the  corpora- 
tion receive  all  of  its  powers  .from  legislative  enactments. 
Nothing  could  be  further  from  the  truth.  If  the  statute 
granted  no  power  whatever,  the  corporation  would  neverthe- 
less have  all  of  its  immemorial  incidents  or  rights  or  powers 
at  common  law,  which  are  as  broad  as  legislative  enactment 
could  possibly  make  them. 
§  147.  Another  Form  of  Minutes  of  Organization,  Form  8. 

Another  form  of  the  first  or  organization  meeting  of  the 
stockholders  adapted  to  the  laws  of  New  York.  It  is  the 
practice  under  the  laws  of  New  York  to  designate  the  first 
board  of  directors  in  the  charter.  That  feature  of  the  action 
of  the  organization  meeting  of  the  stockholders  is  of  course 
omitted.  It  might  be  well  for  the  stockholders  to  signify  their 
approval  of  the  board,  stated  in  the  charter. 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  143 

This  may  be  adopted  or  modified  so  as  to  meet  the  re- 
quirements of  the  business  of  a  corporation  under  the  laws 
of  any  State  of  the  Union. 

Meeting  of  the  "South  Sea  Guano  Company"  held  March 
10,  1904.  Pursuant  to  written  call  and  waiver  of  notice,  the 
first  meeting  of  stockholders  of  the  "South  Sea  Guano  Com- 
pany" was  held  in  the  office  of  Reynold  Jackson,  125  Wall  St., 
N.  Y.,  at  10  o'clock  A.  M.,  on  the  10th  day  of  March,  1904, 
with  all  the  stockholders  present  either  in  person  or  by  proxy. 

Mr.  A.  was  chosen  chairman  and  called  the  meeting  to 
order.  Mr.  B.  was  appointed  secretary  of  the  meeting.  The 
following  stockholders  were  present  in  person : — 

Mr.  A 20  shares. 

Mr.  B 30  shares. 

Mr.  C 10  shares. 

The  following  stockholders  were  present  by  proxy,  duly 
filed  with  the  secretary : — 

Name  Name  of  Proxy  Share  Subscribed 

Mr.  D.  J.  Miller  20 

Mr.  E.  E.  McKee  20 

The  Secretary  presented  the  call  and  waiver  of  notice  pur- 
suant to  which  meeting  was  held,  duly  signed  by  all  the  in- 
corporators  of  the  company.  Said  call  and  waiver  was  or- 
dered spread  upon  the  minutes  as  follows : — 

§  148.     Call  and  Waiver  of  Notice,  Form  9. 

We,  the  undersigned,  being  all  the  stockholders  and  in- 
corporators  of  the  "South  Sea  Guano  Company,"  do  hereby 
call  the  first  meeting  of  the  stockholders  thereof  to  be  held 
in  the  office  of  Reynold  Jackson,  125  Wall  St.,  N.  Y.,  at  10 
o'clock  A.  M.,  on  the  10th  day  of  March,  1904,  for  the  organ- 
ization of  the  corporation,  and  the  transaction  of  all  such 
business  as  may  be  incident  thereto,  and  we  hereby  waive 
all  requirements  as  to  notice  of  such  meeting  and  consent  to 
the  transaction  thereat  of  any  and  all  business  pertaining  to 
the  affairs  of  the  company. 

Dated  New  York,  March  10,  1904. 

(Signed)         Mr.  A.     Mr.  B.     Mr.  C.     Mr.  D.     Mr.  E. 

§  149.     New  York  Designation  of  Articles  of  Incorporation. 

Certificate  of  incorporation  is  used,  as  those  are  the  terms 


144  INDUSTRIAL     CORPORATIONS 

used  in  New  York  to  designate  Articles  of  Incorporation,  or 
charter. 

The  chairman  then  presented  a  certified  copy  of  the  cer- 
tificate of  the  incorporation  of  the  company,  and  stated  that 
said  certificate  had  been  filed  with  the  secretary  of  state, 
and  recorded  by  him  on  the  5th  day  of  March,  1905,  and 
that  a  duplicate  thereof  had  been  filed  for  record  with  the 
county  clerk  on  the  7th  day  of  March,  1905. 

Upon  motion  duly  made  and  carried,  said  certificate  of 
incorporation  was  ordered  received,  and  the  directors  named 
therein  were  recognized  as  the  directors  of  the  company, 
and  the  secretary  was  instructed  to  spread  the  said 'certificate 
upon  the  first  pages  of  the  book  of  minutes. 

The  chairman  also  presented  a  form  of  by-laws  prepared 
by  John  Barnes,  Esq.,  counsel  for  the  company,  which  was 
read,  article  by  article,  and  as  a  whole,  unanimously  adopted 
by  the  company,  and  ordered  entered  in  the  minutes  book 
immediately  succeeding  the  certificate  of  incorporation. 

The  secretary  then  presented  a  written  proposal  from  Gil- 
bert St.  Clair,  of  100  Broad  St.,  N.  Y.,  offering  to  transfer  and 
assign  to  the  company  certain  property,  as  set  forth  in  said 
proposal,  in  exchange  for  the  entire  capital  stock  of  the  com- 
pany, to  be  issued  to  his  order,  full  paid,  non-assessable. 

§  150.     Proposal  to  Exchange  Property  for  Stock,  Form  10. 

100  Broad  St.,  N.  Y.,  March  8,  1904. 
To  the  Stockholders  and  Directors  of 

The  South  Sea  Guano  Company, 
New  York,  N.  Y. 

Gentlemen:  I  hereby  offer  you  in  exchange  and  full  payment 
of  entire  capital  stock  of  the  South  Sea  Guano  Company,  in- 
cluding shares  subscribed  for  by  the  incorporators  (payment 
of  which  by  agreement  with  them,  in  event  of  your  acceptance 
of  my  proposal,  I  assume),  the  property  belonging  to  me  as  lo- 
cated and  situated  in  the  South  Sea  Islands,  and  which  consists 
in  six  large  caves  containing  Guano  dust  in  unexplored  quanti- 
ties, and  is  of  the  reasonable  value  of  $100,000.  The  same  is 
also  free  and  unincumbered,  and  the  title  perfect  in  me.  If  said 
proposition  is  accepted,  the  entire  capital  stock  of  your  com- 
pany, excepting  the  shares  already  subscribed  for,  is  to  be 
issued  to  my  order  full-paid  and  non-assessable  against  the 
delivery  to  your  representative  of  such  duly  executed  deeds 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  145 

and  assignments  of  the  above  property  as  may  be  satisfactory 
to  your  attorneys. 

In  the  event  of  your  acceptance  of  the  foregoing  proposi- 
tion, I  shall  donate  to  your  company  and  turn  over  to  your 
treasurer,  or  some  trustee  for  your  company  to  be  named  by 
you,  not  less  than  $20,000  face  value  of  the  stock  received 
by  me,  said  stock  to  be  used  for  the  purpose  of  providing 
working  capital  for  the  company,  out  of  the  discretion  and 
under  the  direction  of  your  board  of  directors. 

Yours  very  truly, 

Gilbert  St.  Clair. 

After  due  consideration  and  discussion,  said  proposal  was 
ordered  received,  and  the  following  resolution  in  regard 
thereto  was  moved,  seconded,  and  carried  by  unanimous  vote. 

§  151.     Form  Resolution  Accepting  Offer  of  Proposal  to  Ex- 
change Property  for  Capital  Stock,  Form  11. 

Whereas,  a  proposition  has  been  received  from  Gilbert 
St.  Clair  offering  to  sell,  assign,  and  convey  to  this  company 
the  property  belonging  to  him,  situated  in  the  South  Sea 
Islands,  known  as  six  large  caves  of  Guano  dust,  all  as  set 
forth  in  said  proposition,  in  exchange  for  the  entire  capital 
stock  of  the  company,  to  be  issued  full  paid  and  non-assessable 
to  the  order  of  the  said  Gilbert  St.  Clair; 

Whereas,  it  appears  to  the  stockholders  of  this  company 
that  the  said  property  is  desirable  for  the  purpose  of  the  com- 
pany, and  is  reasonably  worth  the  purchase  price  thereof ; 
now  therefore, — 

Resolved,  that  the  said  proposition  for  the  exchange  of 
said  property  for  the  entire  capital  stock  of  this  company 
as  set  forth  in  said  proposition,  be  and  the  same  is  hereby 
approved,  and  the  board  of  directors  of  this  company  are 
hereby  authorized,  empowered,  and  instructed  to  accept  the 
said  proposition  and  to  cause  the  entire  capital  stock  of  the 
company  to  be  issued  for  the  said  property,  in  accordance 
with  the  terms  of  said  proposal. 

There  being  no  further  business  before  the  meeting,  it 
was  adjourned. 

(Signed)     Mr.  A.,  President, 
(Countersigned)     Mr.  C.,  Chairman. 

The  feature  of  the  above  proposition  wherein  the  said  St. 
Clair  proposed  to  donate  to  the  South  Sea  Guano  Co.  certain 
shares  of  stock  to  remain  in  the  treasury  may  be  varied  to 
11 


146  INDUSTRIAL     CORPORATIONS 

suit  the  interests  or  business  enterprise  in  which  the  incor- 
porators  may  be  concerned.  Mr.  St.  Clair  might  retain  the 
20,000  shares  and  sell  them  upon  the  market  and  place  the 
money  in  the  treasury  himself  if  he  so  desired,  and  it  would 
be  equally  as  legal  or  proper  as  the  manner  in  which  he  has 
done,  or  he  might  place  the  said  shares  in  the  hands  of  the 
president  or  treasurer  to  be  sold,  or  in  whatever  manner  he 
may  see  fit,  or  is  agreed  upon  between  him  and  the  company, 
to  reimburse  or  provide  a  cash-working  capital  in  the  treasury, 
as  this  is  the  purpose  of  so  placing  the  shares  with  the  com- 
pany or  in  the  company  as  treasury  stock. 

In  some  States,  as  in  New  York  or  New  Jersey,  for  in- 
stance, inspectors  of  elections  are  appointed  by  the  president 
and  sworn,  but  this  is  possibly  unnecessary  in  any  ordinary 
corporation,  as  these  meetings  are  usually  conducted  hon- 
est, fair,  and  most  amicable. 

§  152.     Organization  Meeting  by  Proxy. 

Where  the  statutes  require  the  stockholders  to  hold  their 
organization  meeting  within  the  State  of  formation,  it  then 
becomes  necessary  where  the  stockholders  are  citizens  of  a 
foreign  State  to  go  into  the  State  where  incorporation  was 
had,  and  organize  or  find  an  avenue  by  and  through  which 
their  presence  may  be  actually  in  one  place  and  fictitiously 
in  another,  possibly  a  thousand  miles  away. 

Some  Legislatures  have  been  wise  enough  to  put  a  clause 
in  their  statutes  expressly  granting  the  formers  of  corpora- 
tion, in  express  terms,  the  right  to  hold  the  meetings  with- 
out the  State.  This  was  for  the  purpose  of  inviting  outside 
citizens  to  do  business  with  their  State  and  to  overcome  the 
false  idea  that  corporations  had  no  power  except  that  given 
by  statute. 

Other  States  and  Territories  are  silent  in  regard  to  the 
holding  of  meetings  of  any  kind.  Wherever  the  statute  is 
silent,  the  stockholders  have  the  inalienable  right  to  hold 
meetings  where  it  is  most  convenient  and  business-like  for 
them  or  most  to  their  own  interest.  This  right  follows  the 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  147 

corporation  at  the  common  as  well  as  the  civil  law.  It  has 
ever  been  their  right  to  make  all  contracts  necessary  to  carry 
on  the  working  machinery  of  their  business. 

Where  it  becomes  necessary  to  hold  the  organization  meet- 
ing in  the  State  of  formation,  or  any  other  meeting  under 
statutory  requirement,  the  genius  of  circumvention  has  and 
always  is  equal  to  the  genius  of  invention,  and  the  scheme 
of  proxy  meetings  have  been  resorted  to,  and  sustained  by 
authority,  to  overcome  the  irksome  duty  of  going  to  a  State 
foreign  to  their  own  domicile. 

The  term  "proxy"  is  a  very  ancient  term.  Its  use  as  a 
technical  term  in  the  United  States  is  different  from  its  use 
in  ancient  times. 

In  ecclesiastical  law,  with  which  our  jurisprudence  is  not 
encumbered,  it  meant  one  who  is  appointed  to  manage  an- 
other's estate  (Black's  Law  Dictionary,  960).  In  England 
it  means  one  who  is  appointed  or  deputed  to  vote  in  another's 
stead,  as  members  of  the  House  of  Lords  have  the  right  to 
vote  by  proxy. 

Blackstone,  vol.  1,  p.  168. 

Voting  by  proxy  is  one  of  the  thousands  of  contracts  that 
the  stockholders  of  corporations  can  make  and  do  make.  It 
is  a  simple  contract  between  stockholders  or  between  stock- 
holders and  others  wherein  the  stockholder  deputes  or  ap- 
points another  to  vote  his  stock  at  a  meeting  of  some  kind. 
It  is  the  appointment  of  an  agent  pure  and  simple  by  a  stock- 
holder, by  a  sort  of  power  of  attorney  not  under  seal.  Under 
the  laws  of  Arizona,  a  corporation  is  given  full  power  to  make 
contracts.  The  stockholder  also  has  the  inalienable  right  to 
make  contracts.  Hence  no  doubt  exists  in  law  or  fact  that 
the  right  under  Arizona  law  exists  to  vote  by  proxy.  The 
right  to  make  contracts  under  Arizona  law  is  unlimited,  both 
as  to  the  corporation  and  its  stockholders.  Why  can  not  the 
stockholders  make  a  proxy  contract?  The  voting  by  proxy  is 
a  right  inherent  in  the  stockholders;  they  can  make  it  one 
of  their  by-laws. 


148  INDUSTRIAL     CORPORATIONS 

Freedom  in  business  is  one  of  the  inalienable  rights  of 
every  citizen  of  the  United  States,  whether  he  or  they  prose- 
cute that  business  under  the  plan  or  system  of  incorporation. 

The  courts  do  not  pioneer  and  blaze  the  way  for  business 
enterprise,  neither  do  they  follow  in  the  rear  to  flank  and 
strike  under  the  belt  and  cripple  the  enterprises  of  individuals, 
neither  do  they  sit  in  judgment  upon  the  business  of  the  peo- 
ple, to  which  and  through  which  all  must  pass  muster  before 
business  is  launched  or  carried  out. 

Neither  can  courts  or  legislators  abridge  or  deny  the  right 
of  contract  among  individuals.  Why  should  the  right  be 
abridged  or  denied  to  individuals  when  doing  business  under 
the  plan  of  incorporation? 

If  the  right  of  contract  can  be  denied  people  when  they 
are  doing  business  under  the  plan  of  incorporation,  then  the 
courts  and  Legislatures  can  do  indirectly  that  which  the 
constitution  expressly  protects  and  forbids.  Making  con- 
tracts is  one  of  those  rights  that  does  not  require  the  decision 
of  a  court  for  its  foundation  or  its  support. 

Where  the  statute  gives  the  right  to  vote  by  proxy,  it 
can  not  be  taken  away  by  a  by-law. 

Bank  vs.  Superior  Court,  104  Cal.  646;  38  Pac.  452. 

Proxy  may  be  signed  in  blank  by  the  giver  and  filled  in 
by  the  receiver,  but  they  can  not  be  irrevocable. 

Matter  of  Townsend,  46  N.  Y.  St.  Rep.  135 ;  Matter  of 
Germicide  Co.,  65  Hun.  606;  20  N.  Y.  Sup.  495;  Matter 
of  White,  45  Hun.  580. 

An  irrevocable  power  of  attorney  can  not  be  given  by  the 
owner  of  stock  to  one  who  has  no  interest  in  the  stock. 
Clowes  vs.  Miller,  60  N.  J.  Eq.  179;  47  Atl.  345. 

Organization  meetings  may  be  held  anywhere  the  statute 
does  not  inhibit  by  proxy. 

Handley  vs.  Stutz,  139  U.  S.  417;  11  sup.  ct.  530;  35 
L.  Ed.  227. 

Organization  meeting,  where  the  statute  requires,  may 
be  held  by  two  or  more  persons  within  the  State  requiring  it 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  149 

by  proxy.     Those  holding  the  meetings  need  not  be  stock- 
holders. 

2  Cook  Corp.,  foot  page  1298;  Sharp  vs.  Dawcs,  2  Q. 

B.  D.  26. 

In  re  Sanitary  Carbon  Co.,  12,  weekly  notes,  223,  the  con- 
trary has  been  held. 

21  Law  Rep.  Am.  174. 

A  corporation  can  not  attack  its  own  existence. 
Heath  vs.  Smelting  Co.,  39  Wis.  146. 

Where  stockholders  appear  at  a  meeting  in  person  or  by 
proxy,  they  can  not  complain,  are  estopped. 

86  Am.  Dec.  128;  Camp  vs.  Byrerce,  41  Mo.  525;  Ohio 
Ry.  vs.  McPherson,  35  Mo.  13;  Ormsby  vs.  Cop.  Co., 
56  N.  Y.  623 ;  Handley  vs.  Stutz,  139  U.  S.  417. 

Persons  dealing  with  it  are  estopped  to  deny  its  corporate 
existence. 

Oregonian  Ry.  Co.  vs.  Navigation  Co.  (cc),  22  Fed.  248; 
Ohio  Nat.  Bank  Wash.  vs.  Construction  Co.,  17  D.  C. 
524;  10  Cyc.  245,  248. 

It  is  seen  that  neither  the  corporation,  the  stockholders, 
nor  those  creditors  dealing  with  the  company  can  complain 
of  its  meetings  held  out  of  the  State ;  the  only  one  left  to 
complain  is  the  State.  The  State  fees  are  all  paid ;  no  tax 
remains  unpaid.  The  State  has  no  other  or  further  interest 
in  it  than  this.  At  the  instance  of  whom  or  upon  what  right 
would  it  proceed?  Certainly  upon  no  other  ground  than  fraud, 
and  that  in  a  clear  flagrant  case. 

State  Ex-inf.  Atty.-Gen.  vs.  Hogan,  163  Mo.  43 ;  63  S. 
W.  378;  State  vs.  Redemption  Co.,  51  L.  Am.  1827;  26 
So.  586;  Coit  vs.  Amalgamating  Co.,  119  U.  S.  343; 
Bank  Ft.  Mad.  vs.  Alden,  129  U.  S.  372;  Lloyd  vs.  Pres- 
ton, 146  U.  S.  630. 

§  153.     Proxy  Meeting,  How  Held. 

Now  how  to  hold  a  meeting  by  proxy. 

The  proxy  meeting  is  no  different  to  one  that  would  be 
held  if  all  the  owners  of  stock  were  present. 


150  INDUSTRIAL     CORPORATIONS 

Hold  the  imaginary  meeting,  write  it  up  precisely  as  if  it 
had  been  held  at  the  place  where  the  proxies  are  to  be  cast. 
Do  everything  on  paper  but  dating  and  signing  it.  Then  send 
the  paper  meeting  to  the  State  or  place  where  the  parties  are 
who  are  going  to  vote  the  proxies,  together  with  the  proxies. 

It  is  possibly  only  necessary  to  say  in  this  connection 
in  explanation  of  the  method  of  procedure  of  a  meeting  by 
proxy  is  no  different  to  a  meeting  held  by  the  stockholders 
themselves,  except  in  case  of  stockholders  meeting  by  proxy, 
their  minutes  and  all  other  things  they  are  required  to  do 
are  prepared  to  do  beforehand,  usually  by  the  attorney  for  the 
company,  complete  and  ready  for  the  signatures  of  the  per- 
sons who  hold  the  meeting  by  proxy. 

The  proxy  holders  assemble  or  meet  just  the  same  as  the 
stockholders  would,  and  they  proceed  to  hold  the  meeting, 
and  we  will  presume  we  will  hold  the  organization  meeting, 
as  we  are  now  considering  that  feature  of  our  corporate  func- 
tion. 

1.  The  meeting  is  called  to  order,  and  one  of  the  proxy 
holders  acts  as  chairman  or  presiding  person  over  the  meet- 
ing. 

2.  Another  one  acts  as  secretary,  precisely  as  if  it  were 
done  by  the  stockholders  in  person.  The  proxy  holders  are 
acting  upon  authority  of  the  proxy's  in  substance  and  in  fact. 

3.  Secretary    calls    the    roll ;    and    he    finds    certain    stock- 
holders present  by  proxy,  and  he  makes  the  statement  in  his 
minutes  thus:     John  Jones,  1,000  shares,  present  by  Joseph 
Smith  proxy  1,000  shares,  and  so  on  through  the  list. 

4.  Production  of  proof  notice  of  meeting  and  such  waivers 
of  notice  are  deemed  necessary  to  be  signed  and  spread  upon 
the  minutes. 

5.  The  Articles  of  Incorporation  or  certified  copy  are  next 
produced  and  spread  upon  the  minutes.     (It  is  not  necessary 
that  any  statement  accompany  the  production  of  the  articles, 
except  a  note  that  such  a  matter  was  disposed  of  at  the  meet- 
ing.) 


ORGANIZATION     OF    CORPORATION     SUGGESTIONS  151 

6.  The  by-laws  are  produced  and  read,  and  the  chairman 
or  president  orders  them  spread  upon  the  minutes. 

The  minute  may  be:  By-laws  of  the  company  produced, 
read,  upon  motion  duly  made  and  carried,  same  was  adopted 
as  a  whole  and  ordered  spread  upon  the  records. 

7.  Election    of   board   of   directors,   the   minute    may   be: 
Election  of  board  of  directors  was  had,  which  resulted  as  fol- 
lows : — 

Vick  Randolph    500  Votes. 

Roscoe  Jones  600 

Peter  Cooper  400 

Roy  Rees   700 

Rex  Mclntyre   480 

Upon  this  showing,  the  chair  will  declare  the  election  of 
the  directors  as  the  highest  vote  appears,  or  the  election  may 
appear  by  a  vote  on  a  member  at  a  time ;  this  will  be  governed 
by  the  judgment  of  those  who  prepare  the  minutes. 

8.  The  exchange  of  property  for  stock  will  be  effected  in 
the  same  way  as  it  is  done  if  the  stockholders  were  actually 
present.     Resolutions  will  be  passed  precisely  the  same  as  a 
meeting  by  the  stockholders  in  person  ;  this  will  be  prepared 
in  advance  and  sent  to  the  persons  who  are  going  to  hold  the 
meeting;  all  they  will  have  to  do  is  to  organize  their  meeting 
and  date  the  minutes  and  sign  them ;  the  signature  will  be 
precisely  as  though  the  meeting  had  actually  and  in  fact  been 
held  by  them.  John   Smith,  Chairman, 

Thomas  Wiley,  Secretary. 

These  suggestions  will  probably  be  sufficient  to  enable 
any  one  at  all  familiar  with  meetings  of  a  corporation  to 
mold  the  meeting  of  a  corporation  wherein  the  stockholders 
participate  in  person  into  a  meeting  by  proxy,  as  they  are 
identical,  except  one  is  done  by  parties  possibly  not  stock- 
holders, while  the  other  is  by  the  stockholders.  All  the 
meetings  of  the  corporations  are  of  a  similar  character  in 
form. 

However,  to  make  the  proxy  meeting  more  ciear.  a  form 
will  be  found  complete  in  the  back  of  the  book. 


152  INDUSTRIAL     CORPORATIONS 

CHAPTER    XVI. 

STATUTES  OF  THE  CORPORATION. 

§  154.     By-laws  Statutes  of  the  Corporations. 

Several  forms  of  by-laws  for  various  States  will  be  found 
in  the  back  of  the  book,  where  most  of  the  forms  given  will 
be  placed  with  a  separate  index  for  them.  The  law  concern- 
ing- by-laws  will  be  briefed,  showing  the  legal  features  of 
by-laws  as  explained  and  evolved  by  judicial  decree  character- 
izing what  may  and  what  may  not  be  done. 

The  by-laws  are  the  statutes  of  the  corporation  or  little 
republic  as  it  was  originally  understood. 

§  154a.     By-laws. 

The  by-laws  of  a  corporation  are  analogous  to  the  enact- 
ments of  Congress  and  the  acts  of  the  Legislatures,  its  charter 
being  analogous  to  the  Constitution  of  the  United  States,  and 
all  the  constitutions  of  the  States.  It  has  been  said  to  be  a 
body  politic.  This  was  an  old  notion  of  the  corporation,  for 
that  it  was  fashioned  after  the  States  or  government,  and  not 
unlike  either  State  or  government,  it  has  a  right  to  pass  laws 
for  its  own  government.  These  laws  must  not,  however, 
contravene  the  laws  of  the  land  or  statutory  enactments,  nor 
the  charter. 

§  155.     By-laws  Must  be  Reasonable,  Not  Against  Law,  nor 
Leveled  at  Individuals. 

The  by-laws  must,  in  order  to  be  effective  and  binding, 
first,  in  general,  be  reasonable ;  second,  must  not  be  contrary 
to  public  policy  nor  inconsistent  with  principles  of  the  law ; 
third,  must  not  be  directed  against  particular  individuals,  but 
must  be  general  in  their  character ;  fourth,  they  must  be  con- 
sistent and  within  the  purposes  of  the  corporation ;  fifth,  they 
must  not  impose  additional  liabilities  on  stockholders,  nor 
seek  to  deprive  stockholders  of  vested  contract  rights.  It 


STATUTES      OF      THE      CORPORATION  153 

was  considered  by  Blackstone  to  be  one  of  the  important 
features  of  the  corporation  to  make  by-laws.  A  by-law  is  a 
permanent  rule  of  action  established  by  the  corporation  by 
which  its  affairs  are  to  be  conducted. 

People  vs.  Crossley,  69  111.  195 ;  Kearney  vs.  Andrews, 
10  N.  J.  Eq.  70;  Commonwealth  vs.  Woelper,  3  Serg. 
&  R.  (pa.  P.  29)  ;  Juker  vs.  Commonwealth,  20  pa.  St. 
484;  Newling  vs.  Francis,  3  T.  R.  189. 

The  stockholders  are  the  proper  authority  to  make  by- 
laws. There  are  a  few  functions  belonging  to  the  stock- 
holders, and  the  making  of  the  by-laws  is  one  of  those  im- 
portant rights.  It  is  an  inherent  power  in  the  stockholders. 
The  directors  have  no  such  power. 

Morton,  etc.  Co.  vs.  Wysong,  51  Ind.  4;  Carroll  vs. 
Mullanphy  Sav.  Bank,  8  Mo.  App.  249;  Brinkerhoff, 
etc.  Co.  vs.  Home  Lumber  Co.,  118  Mo.  447;  Union 
Bank  vs.  Ridgely,  1  Har.  &  G.  (Md.)  324;  Re  Regents', 
etc.  Co.,  2  W.  N.  79;  Rex  vs.  Head,  4  Burr.  2515  ;  United 
Fire  Assoc.  vs.  Benseman,  4  W.  N.  Cas.  (Pa.)  1 ;  Wil- 
son vs  American  Acad.  of  Music,  43  Leg.  Int.  86;  Mor- 
rison vs.  Dorsey,  48  Md.  461. 

It  is  proper,  however,  for  the  stockholders  to  delegate  the 
power  of  making  the  by-laws  to  the  board  of  directors. 

In  Rex  vs.  Spencer,  3  Burr.  1827,  1837,  Lord  Mansfield 
said : — 

"Where  the  power  of  making  by-laws  is  in  the  body  at 
large,  they  may  delegate  their  rights  to  a  select  body." 

Heintzelman  vs.  Druids'  Relief  Assoc.,  38  Minn.  138; 
Stevens  vs.  Davidson,  18  Gratt.  (Va.)  819;  Rex  vs. 
Westwood,  7  Bing.  1 ;  Rex  vs.  Ashwell,  12  East  22. 

The  charter  sometimes  delegates  the  power  of  making 
the  by-laws  to  the  board  of  directors. 

Cahill  vs.  Kalamazoo  Mut.  Ins.  Co.,  2  Doug.  (Mich.) 
124;  Samuel  vs.  Holladay,  Woolw.  400;  S.  C,  21  Fed. 
Cas.  306;  Commonwealth  vs.  Gill,  3  Whart.  (Pa.)  228; 
People  vs.  Sterling  Mfg.  Co.,  82  111.  457. 

Where  there  is  a  statute  allowing  by-laws  to  be  made  for 


154  INDUSTRIAL     CORPORATIONS 

certain  purposes,  none  others  can  be  passed,  or  where  the  by- 
laws conflict  with  the  charter,  the  charter  prevails. 

Ireland  vs.   Globe,  etc.  Co.,  32  Atl.  Rep.  921    (R.   I.)  ; 

Republican,  etc.  Mines  vs.  Brown,  58  Fed.  Rep.  644. 

In  order  to  be  valid,  a  by-law  must  not  conflict  with  the 
statute  or  Articles  of  Incorporation. 

Guinness  vs.  Land  Corp.,  L.  R.  22  Ch.  D.  349. 
A  by-law  must  not  give  the  corporation  a  right  to  forfeit 
the  stock  for  non-payment  of  subscription. 

Re  Long  Island  R.  R.,  19  Wend.  37;  S.  C,  32  Am.  Dec. 
429;  Kirk  vs.  Nowill,  1  T.  R.  118;  Cf.  Kennebec,  etc.  R. 
R.  vs.  Kendall,  31  Me.  470;  Rosenback  vs.  Salt  Springs 
Nat.  Bank,  53  Barb.  495,  506. 

A  by-law  allowing  a  stockholder  to  return  his  stock  at  a 
fixed  price  is  illegal. 

Vercoutere  vs.  Golden  State  Land  Co.,  116  Cal.  410. 

Nor  release  a  stockholder  from  statutory  liability. 

Wells  vs.  Black,  117  Cal.  157. 

A  by-law  must  not  divest  vested  property  rights  of  the 
stockholder. 

Kent  vs.  Quicksilver,  etc.  Co.,  78  N.  Y.  159. 
A  by-law  providing  for  the  oath  to  stockholders  to  vote 
is  void. 

People  vs.  Kip.  4  Cow.  382. 

A  by-law  seeking  to  exclude  a  stockholder  or  director  from 
examining  the  corporate  books  is  void. 
People  vs.  Throop,  12  Wend.  183. 

A  by-law  authorizing  the  restriction  of  the  members  of  a 
church  to  vote  in  contravention  of  the  statute  is  void. 
People  vs.  Phillips,  1  Denio,  388. 

A  by-law  imposing  penalties  for  past  tax  is  void. 
Pulford  vs.  Detroit  Fire  Dept.,  31  Mich.  458. 

A  by-law  that  transfers  of  stock  are  subject  to  the  approval 
of  the  directors  is  void  as  against  the  rights  of  third  persons. 
Farmers',  etc.  Bank  vs.  Wasson,  48  Iowa  336. 


STATUTES      OF     THE      CORPORATION  155 

A  by-law  requiring  the  approval  of  the  president  to  the 
transfers  of  stock  is  void. 

Sargent  vs.  Franklin  Ins.  Co.,  25  Mass.  90. 

By-laws  in  the  following  cases  have  been  held  void: — 
Compelling  members  of  an  exchange  to  submit  their  con- 
troversies to  arbitration  on  pain  of  expulsion  or  suspension. 
State  vs.  Union  Merchants'  Exchange,  2  Mo.  App.  96. 

Providing  that  suits  to  collect  insurance  shall  be  brought 
in  the  county  where  the  company  exists. 

Nute  vs.  Hamilton  Mut.  Ins.  Co.,  72  Mass.  174. 
Enlarging  the   liability  of  stockholders  for  debts  of  the 
corporation.- 

Free  School  Trustees  vs.  Flint,  54  Mass.  539. 

Certainly  where  the  creditor  did  not  expressly  rely  on  the 
by-law. 

Flint  vs.  Pierce,  99  Mass.  68. 

Or  where  an  assignee  of  the  corporate  creditor  seeks  to 
enforce  the  liability. 

Gamble  vs.  Pomeroy,  121  Mass.  207. 

Authorizing  less  than  a  majority  of  directors  to  act  when 
the  statute  required  a  majority. 

State  vs.  Curtis,  9  Nev.  325. 

Compelling  stockholders  to  retire  a  part  of  their  stock. 
Bergman  vs.  St.  Paul,  etc.  Assoc.,  29  Minn.  275,  282. 

Prohibiting  the  use  of  the  company's  canal  on  Sundays. 

Calder,  etc.  Nav.  Co.  vs.  Pilling,  14  M.  &  W.  176. 
Restricting  the  members  as  to  their  fishing  business. 

Adley  vs.  Whitstable  Co.,  17  Ves.  Jr.  315;  19  Ves.  Jr. 

304. 

Restricting  the  number  of  apprentices  whicn  members  may 
have. 

Rex  vs.  Cooper's  Co.,  7  T.  R.  543 ;  Rex  vs.  Tappenden,  3 
East  186. 

Restricting  the  sale  of  guns. 

Gumnakers  vs.  Fell,  Willes  384. 


156  INDUSTRIAL     CORPORATIONS 

Restricting  the  transfer  of  seats  in  an  exchange. 
Ritterband  vs.  Baggett,  42  N.  Y.  Super.  Ct.  556. 

Railroad  regulations  as  to  passengers,  etc.,  are  not  by- 
laws. Their  validity,  however,  depends  on  their  reasonable- 
ness. 

State  vs.  Overton,  24  N.  J.  L.  435. 

The  by-laws  of  a  city  can  not  exclude  from  business  all 
painters  who  do  not  belong  to  a  guild. 
Clark  vs.  Le  Cren,  9  B.  &  C.  52. 

See,  however,  as  to  citv  by-laws  1  Dillen,  Mun.  Corp.,  ch. 
12,  etc. 

If  a  by-law  is  divisible,  the  invalidity  of  part  does  not  in- 
validate the  remaining  part. 

Amesbury  vs.  Bowditch,  etc.  Co.,  72  Mass.  596. 

For  a  valuable  statement  of  the  law  in  relation  to  by-laws, 

see, — 

Re  Long  Island  R.  R.,  19  Wend.  37,  41  ;  Lumley.  By- 
laws (English)  ;  2  Am.  &  Eng.  Ency.  L.  705. 

By-laws  are  construed  as  they  are  construed  by  the  cor- 
poration, .if  that  construction  be  reasonable. 
State  vs.  Conklin,  34  Wis.  21. 

By-laws  are  binding  on  all  members. 
Cummings  vs.  Webster,  43  Me.  192. 

But  strangers  are  not  bound  to  know  them. 

Kingsley  vs.  New  England,  etc.  Co.,  62  Mass.  393. 

Where  the  by-law  was  printed  on  an  insurance  policy. 
Wait  vs.  Smith,  92  111.  385 ;  Royal  Bank,  etc.  Case,  L.  R. 
4  Ch.  App.  252. 

A  by-law  can  not  give  the  president  a  casting  vote  in 
addition  to  his  regular  vote. 

State  vs.  Curtis,  9  Nev.  325. 

A  by-law  prohibits  members  from  working  with  persons 
who  are  not  members  is  void. 

Thomas  vs.  Mutual  Protective  Union,  49  Hun.  171  ;  Cf. 
S.  C,  121  N.  Y.  45. 


STATUTES      OF     THE      CORPORATION  157 

There  is  no  particular  method  or  rules  in  regard  to  the 
method  of  enacting,  amending,  or  repealing  by-laws. 
They  need  not  be  written. 

Union  Bank  vs.  Ridgely,  1  Har.  &  G.  (Md.)  324,  413. 
The  corporation  may  adopt  Cushing's  Manual. 

People  vs.  American  Institute,  44  How.  Pr.  468. 
By-laws  may  be  modified  by  usage. 

Henry  vs.  Jackson,  37  Vt.  431. 
The  charter  may  require  by-laws  to  be  enacted  under  seal. 

Dunston  vs.  Imperial,  etc.  Co.,  3  B.  &  Ad.  125. 
If  amendments  to  the  by-laws  are,  by  the  by-laws,  to  be 
made  only  after  notice,  that  notice  is  necessary. 

French  vs.  O'Brien,  52  How.  Pr.  394. 
Directors  may  disregard  their  own  by-laws. 

Martino  vs.  Commerce  F.  Ins.  Co.,  47  N.  Y.  Super.  Ct. 

520. 

Power  to  make  by-laws  implies  power  to  repeal  them. 

Rex  vs.  Ashwell,  12  East  22. 
By-laws  of  mutual  insurance  associations  may  be  changed. 

Supreme  Lodge,  etc.  vs.  Knight,  117  Ind.  489. 
A  by-law   may  be   repealed  by  a  resolution   inconsistent 
with  it. 

Royal  Bank,  etc.  Case,  L.  R.  4  Ch.  App.  252. 
By-laws  of  a  corporation  must  be  proved.  They  can  not  be 
judicially  noticed. 

Haven  vs.  Asylum,  13  N.  H.  532. 

A  by-law,  to  be  reasonable,  must  be  general.  As  was  said 
in  Budd  vs.  Multnomah  St.  Ry.  Co.,  15  Or.  413;  15  Pac.  659; 
W.  D.  Smith,  Cas.  Corp.  60,  by  Judge  Strahan : — 

"I  think  that  any  by-law  enacted  under  this  section  of  the 
code,  to  be  reasonable,  ought  to  be  general ;  that  is,  it  ought 
to  affect  every  delinquent  subscriber,  and  all  delinquent  stock, 
alike,  and  it  ought  not  to  be  directed  against  the  stock  or 
interests  of  a  particular  stockholder.  These  are  essential 
requisites  to  a  valid  by-law." 

There  are  many  other  decisions  to  the  same  effect. 


158  INDUSTRIAL     CORPORATIONS 

It  was  said  Per  Campbell,  C.  J.,  in  People  vs.  Young  Men's 
Father  Matthew  T.  A.  B.  Soc.,  41  Mich.  67;  1  N.  W.  931, 
that, — 

"It  is  plain  that  all  corporation  by-laws  must  stand  on 
their  own  validity,  and  not  on  any  dispensation  granted  to 
members.  They  can  not  be  subjected  to  any  conditions  which 
do  not  apply  to  all  alike,  and  can  not  be  compelled  to  receive, 
as  matter  of  grace,  anything  which  is  matter  of  right.  Neither, 
on  the  other  hand,  should  there  be  personal  exemptions  of  a 
general  nature  from  any  valid  regulations  that  bind  the  mass 
of  corporators." 

Other  illustrations  of  reasonable  regulations  are: — 

In  Re  Petition  of  Klaus  (Wis.),  29  N.  W.  582;  Farm- 
ers' &  Merchants'  Bank  of  Lineville  vs.  Wasson,  48 
Iowa  336;  Sargent  vs.  Insurance  Co.,  8  Pick.  (Mass.) 
90;  Bank  of  Attica  vs.  Manufacturers'  &  Traders'  Bank, 
20  N.  Y.  501 ;  Moore  vs.  Bank,  52  Mo.  377 ;  Johnson  vs. 
Laflin,  5  Dill.  65  Fed.  Cas.  No.  7,  393 ;  1  Cumming,  Cas. 
Priv.  Corp.  608;  Affirmed  103  U.  S.  800;  Chouteau 
Spring  Co.  vs.  Harris,  20  Mo.  383. 

§  156.     By-law  Lien  on  Shares. 

It  is  a  disputed  question  upon  the  authority  whether  a 
corporation  by  a  by-law  can  create  a  lien  on  its  shares  for 
debts  due  from  its  stockholders.  By  the  weight  of  authority, 
it  is  held  that  the  corporation  has  the  right  under  the  power 
to  regulate  transfers  to  create  a  lien  in  favor  of  the  corpora- 
tion for  debts  due  from  its  stockholders.  This  lien  will  follow 
the  stock  into  whomsoever  hands  it  may.  pass,  who  do  not 
occupy  the  protected  position  of  a  bona  fide  purchaser  for 
value  without  notice  of  the  by-law. 

Morgan  vs.  Bank,  8  Serg.  &  R.  (Pa.)  73;  VanSands  vs. 
Bank,  26  Conn.  144;  Lockwood  vs.  Bank,  9  R.  I.  308; 
Cunningham  vs.  Trust  Co.,  4  Ala.  652;  St.  Louis  Per- 
petual Ins.  Co.  vs.  Goodfellow,  9  Mo.  149;  Child  vs. 
Hudson  &  Bay  Co.,  2  P.  Wms.  207;  M'Dowell  vs.  Bank, 
L.  Har.  (Del.)  27;  People  vs.  Crockett,  9  Cal.  112;  Me- 
chanics' Bank  vs.  Merchants'  Bank,  45  Mo.  513;  Bank 
of  Holly  Springs  vs.  Pinson,  58  Miss.  421  ;  Planters'  & 
Merchants'  Mut.  Ins.  Co.  vs.  Selma  Sav.  Bank,  63  Ala. 
585. 


STATUTES      OF     THE      CORPORATION  159 

It  has  been  held  in  New  York  that  a  by-law  seeking  to 
create  such  a  lien  is  absolutely  void,  not  only  on  the  ground 
of  unreasonableness,  but  because  it  interferes  with  the  com- 
mon rights  of  property,  the  free  intercourse  of  third  persons, 
and  clogs  the  transfer  and  delivery  of  property,  and  for  the 
further  reason  that  it  furnishes  such  corporation  a  remedy 
unknown  to  the  law  and  practically  substitutes  the  right  of 
execution  or  attachment  without  judgment  or  an  action  at 
law. 

Driscoll  vs.  Mfg.  Co.,  59  N.  Y.  96-109. 

In  the  absence  of  express  statutory  authority,  a  corpora- 
tion can  not  provide  for  forfeiture  of  stock  for  non-payment 
of  assessments,  otherwise  if  it  is  expressly  authorized. 

Cahill  vs.  Insurance  Co.,  2  Doug.  (Mich.)  124;  In  re 
Election  of  Directors  of  L.  I.  R.  R.  Co.,  19  Wend.  (N. 
Y.)  37;  Budd  vs.  Multnomah  St.  Ry.  Co.,  15  Or.  413; 
15  Pac.  659;  W.  D.  Smith  Cas.  Corp.  60. 

Where  powers  to  enact  by-laws  are  conferred  by  statute 
or  charter,  and  are  specifically  pointed  out,  the  corporation 
can  not  go  beyond  such  limitation  for  any  other  purpose. 
Ireland  vs.  Reduction  Co.,  (R.  I.)  32  Atl.  921. 

For  that  it  is  a  rule  of  interpretation  that  where  a  statute 
expressly  mentions  one  thing,  it  is  tantamount  to  the  exclusion 
of  all  others. 

Farmers'  &  Mechanics'  Bank  vs.  Baldwin,  23  Minn.  198; 

Case  vs.  Kelly,  133  U.  S.  21;  Black,  Interp.  Laws,  146; 

1  dimming  Cas.  Priv.  Corp.  106;  Talmadge  vs.  Pell,  7 

N.  Y.  328. 

This  rule  applies  with  equal  force  to  the  charter  of  cor- 
porations. 

Case  vs.  Kelly,  133  U.  S.  21. 

And  where  the  charter  provides  that  the  management  of 
the  corporation  shall  be  in  the  board  of  directors,  the  stock- 
holders can  not  by  a  by-law  substitute  an  executive  committee 
in  the  stead  of  the  directors. 

Temple  vs.  Dodge,  32  S.  W.  514  (Tex.  Sup.). 


160  INDUSTRIAL     CORPORATIONS 

A  corporation  can  pass  no  by-laws  to  destroy  or  impair  or 
in  any  way  deprive  a  stockholder  of  a  vested  contract  right, 
unless  he  consents  thereto. 

Kent  vs.  Mining  Co.,  78  N.  Y.  159,  179;  Bergman  vs. 
Association,  29  Minn.  275. 

However,  when  a  by-law  is  passed  and  becomes  a  .part 
of  the  enacted  rules  of  the  company,  one  who  conies  in  there- 
after is  bound  thereby,  for  the  reason  that  it  is  part  of  his 
contract  just  as  much  as  if  it  were  written  into  it. 

Mathews  vs.  Associated  Press,  136  N.  Y.  333;  32  N.  E. 
981. 

A  by-law  may  be  void  in  part  and  valid  in  part. 
Amesbury  vs.  Ins.  Co.,  6  Gray  (Mass.)  596. 

Regularly  authorized  by-laws  bind  the  stockholders 
whether  they  have  signed  or  assented  to  them  or  not.  They 
are  presumed  to  have  notice  of  them. 

Palmetto  Lodge  vs.  Hubbell,  2  Strob.  (S.  C.)  457;  Mc- 
Fadden  vs.  Board,  74  Cal.  571 ;  McFadden  vs.  Board,  16 
Pac.  397. 

It  would  follow  that  invalid  by-laws  bind  no  one,  and 
even  though  a  stockholder  may  not  have  objected  to  such 
a  by-law  until  an  attempt  is  made  to  enforce  against  him, 
still  he  is  not  estopped  from  asserting  its  invalidity. 

Kolff  vs.  Fuel  Exchange,  48  Minn.  215;  Kolff  vs.  Fuel 
Exchange,  50  N.  W.  1036. 

§  157.     By-laws  as  a  Contract. 

In  so  far  as  a  by-law  partakes  of  the  nature  of  a  contract, 
the  parties  are  the  individuals  on  the  one  hand  and  the  cor- 
poration on  the  other,  and  as  far  as  the  right  of  third  per- 
sons to  claim  under  a  by-law  is  concerned,  before  they  can 
claim  rights  under  a  by-law,  they  must  have  made  their  con- 
tracts especially  with  reference  to  it,  otherwise  they  can 
not  claim  the  benefits  of  it. 

To  illustrate :  Where  a  corporation  through  its  stock- 
holders created  a  by-law  in  which  they  pledged  their  indi- 
vidual responsibility  for  any  loans  obtained  by  the  corpora- 


STATUTES'     OF      THE      CORPORATION  161 

tion,  it  was  held  that  a  person  seeking  to  establish  the  liability 
of  the  individual  members  by  reason  of  the  by-law  must  show 
that  he  gave  the  company  credit  by  virtue  of  such  by-law. 
Flint  vs.  Pierce,  99  Mass.  68. 

Nor  can  a  by-law  impose  a  liability  on  third  persons,  nor 
take  away  a  right  where  the  by-law  is  unknown  to  him. 

Mechanics'  &  Farmers'  Bank  vs.  Smith,  19  Johns  (N. 
Y.)  115;  Driscoll  vs.  Mfg.  Co.,  59  N.  Y.  96,  109. 

Nor  is  a  third  person  bound  by  a  by-law  limiting  the  au- 
thority of  an  agent  of  the  corporation. 

Rathburn  vs.  Snow,  123  N.  Y.  343 ;  25  N.  E.  379. 

If,  however,  a  person  enters  into  a  contract  with  a  corpora- 
tion with  full  knowledge  of  a  by-law,  and  does  not  exclude 
the  by-law  from   the  operation  of  the   contract,  the  by-law 
will  form  a  part  of  the  contract  and  be  valid  and  binding 
Douglas  vs.  Ins.  Co.,  118  N.  Y.  484;  23  N.  E.  806. 

Third  persons  having  knowledge  of  the  by-law  may  ex- 
clude it  from  the  contract. 

Martino  vs.  Ins.  Co.,  N.  Y.  Super.  Ct.  520;  Trustees  of 
Soldiers'  Orphans'  Home  vs.  Shaffer,  63  111.  243. 

§  158.     Repeal  and  Amendments  to  By-laws. 

By-laws  being  the  enacted  rule  of  the  corporation,  and  in 
that  respect  similar  respecting  the  power  of  their  creation  to 
the  enactments  of  the  Legislature,  it  would  follow  that  where 
a  corporation  has  the  power  to  make  by-laws,  they  would  have 
the  right  to  repeal  or  amend  such  by-laws,  having  due  regard 
in  any  case  to  the  general  law  of  incorporation  and  the  charter. 
Smith  vs.  Nelson,  18  Vt.  511;  Underhill  vs.  Improve- 
ment Co.,  28  Pac.  1049  (Cal.). 

Where  a  by-law  sought  to  change  the  equal  rights  upon 
the  issue  of  shares  of  stock  and  the  stock  thus  issued,  a  new 
by-law  providing  for  the  issuing  of  preferred  shares  upon  the 
surrender  of  original  shares,  and  by  a  payment  in  addition  to 
the  original  payment,  such  by-law  is  held  void  as  against  the 
12 


162  INDUSTRIAL     CORPORATIONS 

original   stockholders   dissenting  as  impairing  the  obligation 
of  a  contract. 

Kemp  vs.  Min.  Co.,  78  N.  Y.  159,  182. 

Although  the  board  of  directors  may  have  the  power  to 
make  by-laws,  they  can  not  repeal  or  amend  a  by-law  which 
is  a  limitation  upon  their  power. 

Stevens  vs.  Davison,  18  Grat  (Va.)  819. 

§  158a.     Waiver  and  Ratification  By-law. 

If  a  by-law  is  ignored  in  the  course  of  the  action  and 
business  of  the  corporation,  and  such  action  is  acquiesced  in 
by  the  shareholders,  it  will  be  treated  as  a  waiver. 

.  Susquehanna  Mut.  Fire  Ins.  Co.  vs.  Elkins,  124  Pa.  St. 
484;  17  Atl.  24;  Underbill  vs.  Improvement  Co.,  93  Cal. 
300;  Clark  vs.  Ins.  Co.,  6  Cush.  (Mass.)  342;  28  Pac. 
1049. 

The  action  of  the  board  of  directors  in  violation  of  a  by- 
law may  be  ratified  by  the  shareholders,  and  such  ratification 
need  not  be  concurred  in  by  any  more  of  the  shareholders  than 
is  necessary  to  enact  the  by-laws  in  the  first  instance. 
Underbill  vs.  Improvement  Co.,  28  Pac.  1049. 

However,  there  is  a  difference  between  the  board  of  direct- 
ors ignoring  a  by-law  and  the  other  officers  of  the  corpora- 
tion. While  the  board  of  directors  as  has  been  seen,  can 
violate  a.  by-law,  it  is  not  within  the  scope  of  the  other  officers 
to  ignore  by-laws  adopted  by  the  stockholders  for  the  cor- 
porate protection. 

Hale  vs.  Ins.  Co.,  6  Gray  (Mass.)  169;  Mulrey  vs.  Ins. 

Co.,  4  Allen  (Mass.)  116. 


DIRECTORS     MEETING — ANY    STATE 

CHAPTER  XVII. 

DIRECTORS'  MEETING;  ANY  STATE. 

§  159.     Directors'  Meeting  Any  State. 

A  forrn  of  minutes  of  the  first  meeting  of  directors  is  here 
given  that  may  be  varied  to  suit  any  condition  under  the 
laws  of  any  State. 

§  160.     Order  of  Business  of  Directors. 

The  order  of  business  for  the  directors'  meeting  may  be 
in  the  following  form : — 

ORDER    OF    BUSINESS    FOR    DIRECTORS 

1.  Reading  and  disposal  of  any  unapproved  minutes. 

2.  Reports  of  officers  and  committees. 

3.  Unfinished  business. 

4.  New  business,  election  of  officers,  etc. 

5.  Adjournment. 

These  forms  are  only  intended  to  cover  the  general  routine 
that  is  liable  to  occur  at  the  various  meetings  mentioned, 
and  is  not  intended  to  be  any  set  form  to  be  followed,  but 
can  be  varied  according  to  the  judgment  or  taste  of  the  sec- 
retary or  person  in  charge  of  the  minutes. 

§  161.     Directors'   Minutes. 

Minutes  of  the  first  meeting  of  directors  of  the  Leap  to 
Light  Mining  Co.,  held  March  10,  1904. 

Pursuant  to  a  written  call  and  waiver  of  notice,  the  board 
of  directors  of  the  Leap  to  Light  Mining  Co.  held  its  first 
meeting  in  the  office  of  S.  P.  Huntington,  100  Wall  St.,  New 
York,  on  the  10th  day  of  March,  1904,  at  11  A.  M.  Mr.  A. 
was  chosen  temporary  chairman,  and  Mr.  B.  was  appointed 
temporary  secretary  of  the  meeting.  All  the  members  of  the 
board  were  present,  being  Mr.  A.,  Mr.  B.,  and  Mr.  E. 

On  request  of  the  chairman,  the  secretary  presented  the 
call  and  waiver  of  notice  pursuant  to  which  this  meeting  was 
held,  duly  signed  by  all  members  of  the  board.  It  was  ordered 
spread  upon  the  minutes,  and  is  as  follows: — 


\£A  INDUSTRIAL     CORPORATIONS 

§  162.     Call  and  Waiver  of  Notice  Directors'  Meeting. 

We,  the  undersigned,  being  all  the  directors  of  The  Leap  to 
Light  Mining  Co.,  hereby  call  a  meeting  of  the  directors  of  said 
company,  to  be  held  in  the  office  of  S.  P.  Huntington,  at  100 
Wall  St.,  N.  Y.,  at  11  o'clock  A.  M.  on  the  10th  day  of  March, 
1904,  for  the  purpose  of  electing  officers  of  the  company, 
acting  upon  a  proposition  to  exchange  property  for  the  stock 
of  the  company,  and  doing  all  such  other  things  as  may  be 
necessary  and  desirable  in  connection  with  the  organization 
of  the  company  or  the  promotion  of  its  business,  we  hereby 
waive  all  statutory  and  by-law  requirements  as  to  notice  of 
time,  place,  and  object  of  this  meeting,  and  consent  to  the 
transaction  throughout  of  any  and  all  business  pertaining  to 
the  affairs  of  the  company. 

(Signed)         Mr.  B.,  Director. 
Mr.  A. 

Dated  New  York  City,  Mr.  E. 

March  8,  1904. 

§  163.     Inspectors  of  Elections. 

The  chairman  then  appointed  Mr.  E.  to  conduct  the  elec- 
tion of  officers  of  the  company,  the  officers  so  elected  to  serve 
for  the  remainder  of  the  corporate  year  and  until  the  election 
of  their  successors.  The  votes  of  those  present  were  then 
duly  cast  by  ballot,  resulting  in  the  election  by  unanimous 
vote  of  the  following  officers : — 

Mr.  A.,  President. 

Mr.  B.,  Vice-President. 

Mr.  C.,  Secretary  and  Treasurer. 

The  permanent  officers  of  the  company  thereupon  took 
charge  of  the  meeting.  The  secretary  presented  the  follow- 
ing stock  certificates  for  approval,  which  was  by  motion 
adopted  as  the  stock  certificates  of  the  company  as  prepared 
by  its  directors,  and  the  secretary  was  instructed  to  spread 
the  said  form  upon  the  pages  of  the  minute-book  immediately 
following  the  record  of  the  meeting  then  in  progress. 

The  president  then  presented  a  written  proposal  from  Mr. 
Gilbert  St.  Clair,  of  New  York,  offering  to  assign  to  the  com- 
pany, in  exchange  for  its  entire  capital  stock,  certain  specified 
mining  property.  The  said  proposal  was  ordered  spread  upon 
the  minutes  in  full.  The  president  also  presented  a  resolution 
of  the  stockholders,  approving  the  said  proposal  and  authoriz- 
ing and  instructing  the  directors  to  accept  same  and  take  such 


DIRECTORS'    MEETING — ANY    STATE  165 

action  in  regard  thereto  a:;  might  be  necessary  to  make  such 
acceptance  fully  effective. 

§  164.     Resolution  Accepting  Tender  of  Property. 

The  following  resolution  was  thereupon  moved,  seconded, 
and  unanimously  adopted  : — 

Whereas,  the  property  offered  in  exchange  for  the  capital 
stock  of  this  company  by  Mr.  Gilbert  St.  Clair,  in  his  proposi- 
tion to  the  company,  is  adjudged  by  this  board  to  be  of  the 
reasonable  value  of  $100,000,  and  to  be  necessary  for  the  use 
and  lawful  purpose  of  this  company ; 

Resolved,  that  said  property  be  and  hereby  is,  in  accord- 
ance with  the  authorization  and  instruction  of  the  stock- 
holders of  this  company,  accepted  in  full  payment  for  the  said 
capital  stock  of  the  company  in  accordance  with  the  terms 
of  said  proposition ;  and  the  proper  officers,  the  president  and 
secretary,  are  hereby  authorized  and  directed  to  receive  the 
duly  executed  transfer  and  assignments  of  the  property  speci- 
fied in  such  proposition,  and  to  issue  in  exchange  therefor  the 
entire  stock  of  the  company,  full  paid  and  non-assessable,  to 
such  person  or  persons  as  may  be  designated  by  the  written 
orders  of  the  aforementioned  Gilbert  St.  Clair,  except  as  to 
the  shares  subscribed  for  by  the  incorporators,  which  shall 
be  issued  to  them  or  to  their  order. 

Upon  motion  duly  made,  seconded,  and  carried,  the  fol- 
lowing resolution  was  adopted: — 

§  165.     Resolution  Instructing  Treasurer  to  Open  Account. 

Resolved,  that  the  treasurer  is  hereby  authorized  and  in- 
structed to  open  an  account  for  the  company  with  the  Chemi- 
cal National  Bank,  of  New  York  City,  and  to  deposit  therein 
all  funds  of  the  company  coming  into  his  custody,  such  ac- 
count to  be  in  the  name  of  the  company,  and  the  funds  de- 
posited therein  to  be  withdrawn  only  by  checks  signed  by 
the  treasurer  and  countersigned  by  the  president. 

The  following  motions  were  then  made,  seconded,  and  duly 
passed  by  the  unanimous  vote  of  all  present : — 

Moved  and  carried,  that  the  president  be  and  hereby  is 
authorized  to  lease  for  the  use  of  the  company,  suitable  offices 
in  the  city  of  New  York,  as  may  be  necessary  for  the  proper 
transaction  of  the  company's  business,  such  a  lease  to  be  for 
one  year,  with  the  privilege  of  renewal  at  the  option  of  the 
company,  at  an  annual  rental  not  exceeding  $1,000  per  annum, 
and  the  office  so  secured  to  be  the  principal  office  of  the  com- 
pany within  the  city  of  New  York. 


166  INDUSTRIAL     CORPORATIONS 

Moved  and  carried,  that  the  secretary  be  hereby  instructed 
to  procure  a  book  of  stock  certificates  in  the  usual  and  proper 
form  adopted  by  this  company,  and  a  corporate  seal,  as  pro- 
vided for  in  the  by-laws  of  this  company ;  also  all  such  stock 
and  transfer  books,  and  books  of  account,  and  such  other 
stationary  and  supplies  as  may  be  necessary  for  the  proper 
operation  and  record  of  the  company's  business  and  trans- 
actions. 

Moved  and  carried,  that  the  secretary  be  instructed  to  pre- 
pare or  have  prepared  in  due  and  proper  form  a  certificate  of 
the  assignment  of  one  half  of  the  capital  stock  of  the  com- 
pany, and  for  the  due  execution  and  verification  thereof  to  file 
such  certificate  as  required  by  law,  and  to  spread  a  copy  thereof 
upon  the  pages  of  the  minute-book  following  the  record  of 
the  present  proceedings. 

Moved  and  carried,  that  the  treasurer  be  hereby  author- 
ized and  instructed  to  pay  of  the  company's  funds  the  ex- 
penses properly  incurred  in  the  incorporation  of  the  company 
or  in  connection  therewith. 

Moved  and  carried,  that  Mr.  E.  be  appointed  inspector  of 
elections  to  serve  at  the  first  annual  election  of  the  directors 
of  the  company  and  at  any  election  of  directors  by  the  stock- 
holders subsequently  thereto. 

There  being  no  further  business  for  the  consideration  of 
the  meeting,  it  was  adjourned. 

(Signed)      Mr.  A.,  Pres. 

(Countersigned)     Mr.  B.,  Sec. 

Each  one  of  the  papers  mentioned  and  referred  to  in  the 
secretary's  minutes,  to-wit :  The  proposal  to  exchange  prop- 
erty ;  the  call  and  waiver  of  notice ;  the  stock  certificate ;  and 
the  evidential  paper  for  the  payment  of  one-half  the  capital 
stock,  should  each  and  every  one  of  them  be  spread  out,  fol- 
lowing the  minutes  by  the  secretary.  This  may  appear  to  be 
keeping  a  double  record  of  these  papers,  and  a  waste  of  time, 
but  it  will  be  found  that  in  the  long  run,  it  will  be  much 
easier  to  refer  to  the  minute-book  for  all  such  papers,  than 
it  will  to  dig  into  the  archives  of  the  company  and  through 
everything  for  the  proper  paper,  and  unless  such  a  paper 
would  be  necessry  as  evidence,  it  could  remain  on  file  in  the 
company's  archives  and  no  further  reference  to  it  need  be 
had  than  to  the  minute-book. 


OFFICERS     AND    AGENTS  167 

CHAPTER   XVIII. 

OFFICERS  AND  AGENTS. 

§  166.     Board  of  Directors. 

Every  private  corporation  has  the  power  to  elect  officers 
and  appoint  agents  to  carry  on  the  necessary  affairs  and  busi- 
ness designated  in  its  charter  or  Articles  of  Incorporation. 
Usually  the  management  of  private  corporations  is  vested  in 
a  board  of  directors  by  the  Articles  of  Incorporation.  Where 
the  charter  or  Articles  of  Incorporation  are  silent  upon  the 
subject,  the  stockholders,  nevertheless,  have  the  right  to  elect 
directors  and  invest  them  with  the  proper  authority  to  super- 
vise and  to  manage  the  affairs  of  the  corporation.  This  power 
extends  to  the  appointment  of  agents  of  all  characters. 

Hulbert  vs.  Marshall,  62  Wis.  590;  22  N.  W.  852,  855. 

Any  person  who  becomes  a  stockholder  in  a  private  cor- 
poration thereby  impliedly  consents  that  such  corporation 
shall  be  represented  by  such  officers  and  agents  as  are  neces- 
sary to  carry  out  the  purpose  of  the  corporation. 

Protection  Life  Ins.  Co.  vs.  Foote,  79  111.  361. 

The  manner  and  form  of  the  election  of  officers  and  the 
appointment  of  other  agents  may  be  prescribed  by  the  by-laws 
or  by  the  charter,  and  unless  the  manner  and  form  of  election 
and  appointment  of  officers  is  so  prescribed,  no  particular 
formalities  are  necessary. 

Bank  of  Columbia  vs.  Patterson's  Admr.  7  Cranch  299. 

The  use  of  a  seal  in  the  appointment  01  agents  of  a  cor- 
poration is  unnecessary  unless  it  is  required  by  statute  or 
some  rule  of  the  corporation.  Said  Blackstone : — 

"A  corporation,  being  an  invisible  body,  can  not  manifest 
its  intention  by  any  personal  act  or  oral  discourse.  It  there- 
fore speaks  and  acts  only  by  its  common  seal.  For,  though 
the  particular  members  may  express  their  private  consent  to 


168  INDUSTRIAL     CORPORATIONS 

any  act  by  words  or  signing  their  names,  yet  this  does  not 
bind  the  corporation ;  it  is  the  fixing  of  the  seal,  and  that  only, 
which  united  the  several  assents  of  the  individuals  who  com- 
pose the  community,  and  makes  one  joint  assent  of  the  whole." 

1  Blackstone  Comm.  475 ;  Dunston  vs.  Coke  Co.,  3  Barn. 

&  Adol.  125 ;  Horn  vs.  Ivy,  1  Vent.  147. 

However,  this  rule,  like  many  other  rules  of  the  common 
law,  has  been  wiped  away  by  the  necessity  of  the  times  and  it  is 
no  longer  necessary  for  a  corporation  to  use  a  seal  unless  it  is 
in  such  contracts  as  an  individual  would  be  compelled  to  use 
a  seal,  and  it  is  now  well  understood  that  a  corporation  may 
appoint  an  attorney,  agent  or  servant  by  parol  or  in  writing 
with  the  same  force  and  effect  as  an  individual  can  without 
the  use  of  a  seal. 

Pixley  vs.  Railroad  Co.,  33  Cal.  183 ;  Hand  vs.  Coal  Co., 
143  Pa.  St.  408;  22  Atl.  709;  Bank  of  Columbia  vs.  Pat- 
terson's Admr.,  7  Cranch  299 ;  Goodwin  vs.  Screw  Co., 
34  N.  H.  378;  1  dimming,  Cas.  Priv.  Corp.  119. 

Neither  is  it  necessary  for  a  corporation  through  its  stock- 
holders to  make  or  enter  into  a  formal  vote  to  appoint  an 
agent.  For  that, — 

"Where  one  has  the  actual  charge  and  management  of  the 
general  business  of  a  corporation,  with  the  knowledge  of  the 
members  and  directors,  this  is  evidence  of  his  authority,  with- 
out showing  any  vote  or  other  corporate  act  constituting  him 
agent  of  the  corporation." 

Goodwin  vs.  Screw  Co.,  34  N.  H.  378;  1  Cumming  Cas. 

Priv.  Corp.  119;  Sherman  Center  Town  Co.  vs.  Swigart, 

43  Kan.  292 ;  23  Pac.  569. 

§  167.     Qualifications  of  Directors  and  Other  Officers. 

Unless  required  by  statute,  charter,  or  by-law,  there  is 
no  particular  qualification  required  to  constitute  a  person 
eligible  to  the  office  of  director  or  any  other  position  in  a 
corporation.  It  is  customary,  however,  to  prescribe  that  an 
individual  to  be  a  director  or  other  officer  must  be  a  stock- 
holder. If  no  provision  or  requisite  is  provided,  the  directors 
are  usually  chosen  from  among  the  stockholders  and  this  is 
the  better  plan  as  the  board  of  directors  is  an  important 


OFFICERS     AND    AGENTS  169 

factor  in  the  enterprise,  and  it  is  desirable  always  to  have  as 
much  interest  manifested  as  possible.  There  is  no  rule  of  law 
making  it  indispensable  for  a  director  or  other  officer  to  own 
stock  in  a  corporation  before  he  can  qualify. 

Wright  vs.  Railroad  Co.,  117  Mass.  226;  19  Am.  Rep. 
412;  Cf.  Diet.  Penobscot  R.  Co.  vs.  Dummer,  40  Me. 
172 ;  63  Am.  Dec.  654. 

The  statute  of  New  York  has  a  provision  that  "the  di- 
rectors of  every  stock  combination  shall  be  chosen  from  the 
stockholders,"  and  that,  "if  a  director  shall  cease  to  be  a  stock- 
holder, his  office  shall  become  vacant,"  and  this  has  been  held 
to  require  the  actual  ownership  of  stock,  and  that  a  mere 
trustee  of  stock  is  not  eligible  for  the  office  of  director. 

In  re  Elias  (Sup.),  40  N.  Y.  Supp.  910;  Chemical  Natl. 
Bank  vs.  Colwell,  132  N.  Y.  250;  30  N.  E.  644. 

In  some  States,  the  statutes  require  that  the  directors,  or 
a  certain  number  of  the  directors,  must  be  residents  of  the 
State  as  a  qualification  for  a  director.  Where  this  is  the  law, 
a  non-resident  is  not  eligible. 

Horton  vs.  Wilder,  48  Kan.  222;  29  Pac.  566. 

Where    non-residents    are    not    prohibited    from    owning 
stock  in  a  corporation,  they  are  eligible  as  directors. 
Detwiler  vs.  Com.  (Pa.  Sup.),  18  Atl.  990. 

It  is  right  and  proper  that  a  director  may  also  hold  another 
office  or  offices  in  the  corporation,  unless  there  is  expressed 
authority  to  the  contrary. 

Sargent  vs.  Webster,  13  Mete.  (Mass.)  497. 

The  directors  are  agents  of  the  corporation  and  not  agents 
of  the  stockholders. 

Bank  of  U.  S.  vs.  Danridge,  12  Wheat  113;  Dana  vs. 
Bank  of  U.  S.,  5  Watts  &  S.  246;  Maynard  vs.  Fire- 
man'^, etc.  Ins.  Co.,  34  Cal.  48. 

Those  who  transact  business  with  the  corporation  by 
and  through  its  agents  are  not  bound  to  inquire  whether  the 
agent  was  eligible  to  the  office  or  not ;  it  is  sufficient  that  the 


170  INDUSTRIAL     CORPORATIONS 

corporation  hold  out  such  person  as  its  agent,  and  if  a  cor- 
poration elect  a  person  who  is  ineligible  to  a  position  under 
a  by-law,  and  permit  him  to  transact  business  for  it,  it  will 
be  bound  by  his  acts. 

Dispatch  Line  of  Packets  vs.  Bellamy  Man'g.  Co.,  12 

N.  H.  205. 

§  168.     Power  of  Directors. 

The  board  of  directors  of  a  corporation  being  the  avenue 
through  which  its  business  is  transacted,  necessarily  have 
the  widest  scope.  They  make  its  contracts  and  supervise 
its  business  generally  and  specially.  The  board  of  directors 
act  by  vote  of  the  board  in  making  contracts  or  they  au- 
thorize an  agent  to  make  contracts,  or  they  may  delegate 
the  authority  to  an  agent  to  make  contracts,  or  they  may 
accept  the  benefits  of  a  contract  made  by  an  agent ;  and  in 
all  cases  respecting  all  its  contracts  the  board  of  directors, 
and  not  the  stockholders,  nor  any  of  its  other  officers,  neither 
the  president,  secretary,  treasurer,  nor  general  managing 
agent,  is  the  original  and  supreme  power  in  corporations  to 
make  corporate  contracts. 

All  of  the  various  acts  and  contracts  entered  into  by  the 
corporation  are  made  by  and  through  the  board  of  directors 
The  board  of  directors  either  make  or  authorize  notes,  bills, 
mortgages,  sales,  deeds,  liens,  and  all  other  contracts  of  the 
company.  They  have  the  power  to  appoint  agents  and  govern 
the  general  policy  of  the  corporation.  The  directors  elect 
other  officers  and  a  person  may  hold  any  number  of  offices 
at  same  time.  As  was  said  by  Throop  on  Public  Officers, 
Sec.  30:— 

"At  common  law  there  is  no  limit  to  the  number  of  offices 
which  may  be  held  simultaneously  by  the  same  person,  pro- 
vided that  neither  of  them  is  incompatible  with  any  other." 
People  vs.  Greene,  58  N.  Y.  295. 

In  the  control  of  the  corporate  business  in  the  prose- 
cution of  actions  at  law  and  equity  and  the  general  manage- 
ment of  the  same,  the  directors  have  a  wide  discretion.  This 
discretion  can  not  be  interfered  with  by  the  stockholders. 


OFFICERS    AND    AGENTS  171 

In  McDougal  vs.  Gardner,  L.  R.,  1  Ch.  D.  13,  it  was  said: — 
"There  may  be  claims  against  the  directors;  there  may  be 
claims  against  officers;  there  may  be  claims  against  debtors; 
there  may  be  a  variety  of  things  which  a  company  may  well 
be  entitled  to  complain  of,  but  which,  as  a  matter  of  good 
sense,  they  do  not  think  it  right  to  make  the  subject  of  litiga- 
tion ;  and  it  is  the  comoany,  as  a  company,  which  has  to  de- 
termine whether  it  will  make  anything  that  is  wrong  to  the 
company  a  subject  matter  of  litigation,  or  whether  it  will  take 
steps  itself  to  prevent  the  wrong  from  being  done." 
15  Fed.  Rep.,  360  note. 

A   majority   of  the   stockholders    can   not   go   into   court 
and  dismiss  an  appeal  against  the  will  of  the  directors. 
Railway  Co.  vs.  Ailing,  99  U.  S.  463. 

"Questions  of  policy  management,  of  expediency  ol  con- 
tracts or  action  of  adequacy  of  consideration  not  grossly  dis- 
proportionate, of  lawful  appropriation  of  corporate  funds  to 
advance  corporate  interests,  are  left  solely  to  the  honest  de- 
cision of  the  directors,  if  their  powers  are  without  limitation 
and  free  from  restraint.  To  hold  otherwise  would  be  to  sub- 
stitute the  judgment  and  discretion  of  others  in  the  place  of 
those  determined  on  by  the  scheme  of  incorporation." 

Ellerman  vs.  Chicago  Junction,  etc.  Co.,  49  N.  J.  Eq. 
217. 

It  has  been  held  that  the  discretion  of  the  directors  can 
not  be  questioned  by  the  stockholders,  much  less  interfered 
with. 

See  Edison  vs.  Edison  United  Phonograph  Co.,  52  N.  J. 
Eq.  620. 

The  discretion  of  the  directors  or  the  majority  of  the 
stockholders  as  to  acts  intra  vires  can  not  be  questioned  by 
single  stockholders  unless  fraud  is  involved. 

McMullen  vs.  Ritchie,  64  Fed.  Rep.  253. 

It  has  also  been  said  in  Bloxam  vs.  Metropolitan  R'y,  L. 
R.,  3  Ch.  App.  337,  that  :— 

"The  matters  of  internal  arrangement  which  are  beyond 
the  province  of  the  court,  were  properly  admitted  to  be  such 
as  are  within  the  scope  of  the  company's  powers." 


172  INDUSTRIAL     CORPORATIONS 

And  in  Camblos  vs.  Philadelphia,  etc.  R.  R.  Co.,  4  Brewst. 
563,  591,  S.  C.  4  Fed.  Cas.  1089,  of  the  action  of  a  stock- 
holder it  was  said  : — 

"So  long  as  those  who  manage  the  corporation  keep  within 
the  limits  of  its  charter,  and  commit  or  propose  to  commit 
no  breach  of  their  trust,  he  has  no*  right  to  complain." 
Becher  vs.  Wells,  etc.  Co.,  1  Fed.  Rep.  276. 

In  Bach  vs.  Pacific  Mail  S.  S.  Co.,  12  Abb.  Pr.  (N.  S.) 
373,  it  was  said  : — 

"No  place  can  be  found  where  the  general  manage- 
ment of  corporate  property  has  been  subject  to  the  restric- 
tions of  judicial  power,  unless  indeed,  in  the  case  of  a  clear 
violation  of  expressed  law,  or  a  wide  departure  from  chartered 
powers." 

Walker  vs.  Mad  River,  etc.  R.  R.  Co.,  8  Ohio  38;  Tus- 
caloosa  Mfg.  Co.  vs.  Cox,  68  Ala.  71. 

In  Ramsey  vs.  Erie  Ry.  Co.  7  Abb.  Pr.  (N.  S.)  156,  it 
was  said : — 

"When  directors  are  only  unwise,  or  merely  extravagant, 
or  improvident,  or  slightly  negligent,  or  merely  misjudged  in 
the  performance  of  their  duty,  the  remedy  of  stockholders  is 
to  elect  other  persons  directors  in  their  places." 

Bailey  vs.  Birkenhead,  etc.  Ry.,  12  Beav.  433 ;  Edwards 
vs.  Shrewsbury,  etc.  Ry.,  2  De  G.  &  Sm.  300. 

The  rules  here  announced  are  settled  beyond  question. 
Were  it  otherwise,  there  would  be  no  safety  or  possibility 
in  carrying  on  the  business  of  the  corporation.  Dissatisfied 
stockholders  would  institute  suits  for  the  very  purpose  of 
embarrassing  the  business  of  the  company.  The  corporate 
directors  are  the  sole  authority  in  the  management  of  the 
corporation  within  their  powers  and  they  may  and  should 
use  their  own  discretion  as  to  what  ought  to  be  done,  and  in 
all  acts  intra  vires  where  there  is  no  fraud,  the  directors  are 
the  sole  judges  of  the  propriety  of  their  own  acts. 

Symmes  vs.  Union  Trust  Co.,  60  Fed.  Rep.  830. 

Where  there  is  great  hostility  and  violent  internal  com- 
motion in  a  corporation,  such  as  where  there  are  two  sets 
of  directors  elected  by  the  stockholders,  a  court  of  equity 


OFFICERS    AND    AGENTS  173 

will  take  possession  of  the  property  by  a  temporary  receiver. 
Trade  Auxiliary  Co.  vs.  Vickers,  L.  R.  16  Eq.  303 ; 
Featherstone  vs.  Cook,  L.  R.,  60  Eq.  298,  303 ;  Lawrence 
vs.  Greenwich  F.  Ins.  Co.,  1  Paige  587. 

A  stockholder'  can  question  acts  and  contracts  which  are 
fraudulent  ultra  vires  or  mala  in  sc. 

Fountain  Ferry,  etc.  Co.  vs.  Jewel,  8  B.  Mon.  (Ky.)  140. 

Where  the  power  of  the  management  of  the  corporation  is 
in  the  directors,  the  power  is  exclusive  in  its  character.  The 
stockholders  as  such  in  their  collective  capacity,  can  do  no 
corporate  act.  The  directors  are  their  representatives  and 
they  alone  are  authorized  to  act. 

McCullough  vs.  Mass.,  5  Denio,  (N.  Y.)  575. 

However,  such  an  authority  is  limited  to  the  business  cor- 
porate acts,  and  not  to  the  strictly  corporate  acts  as  is  else- 
where shown  in  this  work. 

§  169.     Directors   Limited. 

It  must  not  be  understood  or  supposed  that  the  powers  of 
the  directors  are  unlimited.  They  are  only  invested  with  the 
power  to  manage  the  affairs  of  the  corporation,  and  here  their 
authority  ends.  They  have  no  power  without  the  consent 
of  the  stockholders  to  effect  any  fundamental  change  in  the 
corporation.  Unless  expressly  authorized,  they  can  not  make 
by-laws  nor  increase  nor  decrease  capital  stock,  nor  au- 
thorize an  amendment  to  the  charter  in  any  manner,  nor 
dissolve  the  corporation.  These  functions  are  strictly  within 
the  power  of  the  stockholder  as  well  as  the  election  of  the 
directors  themselves. 

Eidman  vs.  Bowman,  58  111.  444;  Metropolitan,  etc.  Ry. 

vs.  Manhattan,  etc.  Ry.,  Daly  (N.  Y.)  377. 

The  board  of  directors,  however,  may,  if  the  corporation 
is  insolvent,  make  an  assignment  for  the  benefit  of  the 
creditors. 

Burrill  vs.  Bank,  2  Mete.  (Mass.)  163;  Salt  Marsh  vs. 

Spaulding,  147  Mass.  224;  17  N.  E.  316. 

The  directors  as  such  can  do  no  act  that  is  not  within 


174  INDUSTRIAL     CORPORATIONS 

the  powers  especially  set  forth  in  the  charter  of  the  corpora- 
tion. If  they  attempt  to  do  so,  and  for  any  reason  relief  can 
not  be  obtained  through  the  corporation,  the  stockholder  has 
a  right  to  bring  an  action  either  to  enjoin  it  if  it  has  not  been 
performed,  or  to  set  it  aside  if  it  has  been  consummated.  In 
such  a  bill,  however,  it  must  be  shown  that  the  stockholder 
has  exhausted  every  available  and  reasonable  remedy  to 
obtain  redress  by  application  to  the  board  of  directors,  and, 
if  it  is  practicable,  to  call  upon  the  stockholders  as  a  body 
to  act;  that  must  also  be  shown. 

Foss  vs.  Harbottle,  2  Hare;  1  Gumming,  Cas.  Priv. 
Corp.  693;  Mozley  vs.  Alston,  1  Phil.  Ch.  790;  Russell 
vs.  Waterworks  Co.,  L.  R.  20  Eq.  474 ;  1  Cumming  Cas. 
Priv.  Corp.  725 ;  Hawes  vs.  City  of  Oakland,  104  U.  S. 
450;  1  Cumming,  1  Cummings  Cas.  Priv.  Corp.  756; 
Allen  vs.  Wilson,  28  Fed.  677;  Booth  vs.  Robinson,  55 
Md.  419;  Brewer  vs.  Boston  Theater,  104  Mass.  378; 
Dunphy  vs.  Association,  146  Mass.  495;  16  N.  E.  426; 
1  Cumming  Cas.  Priv.  Corp.  769;  Mont  vs.  Trust  Co., 
(Va.)  25  S.  E.  244;  Rathbone  vs.  Gas.  Co.,  31  W.  Va. 
798;  8  S.  E.  570;  Hersey  vs.  Veazle,  24  Me.  9;  Greaves 
vs.  Gouge,  69  N.  Y.  154;  Doud  vs.  Railway  Co.,  65  Wis. 
108;  25  N.  W.  533;  Hazard  vs.  Durant,  11  R.  I.  195; 
Black  vs.  Huggins,  2  Tenn.  Ch.  780;  Cogswell  vs.  Bull, 
39  Cal.  320. 

No  doctrine  in  the  law  is  better  settled  than  that, — 
"When  the  directors  or  officers  of  a  corporation  cause  a 
loss  of  corporate  property  by  negligence  or  culpable  lack  of 
prudence  or  failure  to  exercise  their  functions ;  or  fraudulently 
misappropriate  the  corporate  property  in  any  manner,  whether 
for  their  own  benefit  or  for  the  benefit  of  a  third  person  ;  or 
obtain  any  undue  advantage,  benefit,  or  profit  for  themselves 
by  contract,  purchase,  sale,  or  other  dealings  under  color  of 
their  official  functions ;  or  misuse  the  franchise  ;  or  violate  the 
rules  established  by  the  charter  or  by-laws  for  their  manage- 
ment of  the  corporate  affairs ;  or  in  any  other  similar  manner 
commit  a  breach  of  their  fiduciary  obligations  toward  the  cor- 
poration, so  that  it  sustains  injury  or  loss,  and  a  liability  de- 
volves upon  themselves,  then  the  corporation  is  the  party  to 
sue  for  equitable  relief,  and  in  such  cases  no  equitable  suit 
for  relief  can  be  maintained  against  the  directors  or  officers  by 


OFFICERS    AND    AGENTS  175 

the  stockholders  or  stockholders  individually,  nor  by  a  stock- 
holder in  a  representative  capacity  on  behalf  of  all  the  others 
similarly  situated,  unless  the  corporation  either  actually  or 
virtually  refuses  to  prosecute." 

Doud  vs.  Railway  Co.,  65  Wis.  108;  25  N.  W.  533. 

Acts  and  contracts,  if  transacted  by  the  directors,  may 
be  ratified  by  the  stockholders,  if  within  the  power  of  the 
corporation,  and  will  be  implied  if  the  delay  is  for  an  un- 
reasonable time  and  no  steps  are  taken  to  set  the  transaction 
aside. 

State  vs.  Smith,  48  Vt.  266;  Steger  vs.  Davis,  8  Tex. 
Civ.  App.  23 ;  27  S.  W.  1069 ;  Aurora  Agricultural  &  H. 
Soc.,  80  111.  263;  Reichwald  vs.  Hotel  Co.,  106  111.  439. 

A  corporation  like  a  natural  person  may  become  bound 
by  the  act  of  a  person  assuming  to  act  for  it  without  authority 
if,  however,  it  ratifies  the  act. 

It  may  be  said  in  general  that  any  act  the  corporation  has 
the  power  to  authorize,  if  done  by  the  board  of  directors,  or 
any  other  officer  or  person,  the  corporation  may  ratify  and 
the  act  will  then  be  binding  upon  the  corporation.  In  fact, 
the  ratification  may  be  implied  from  the  conduct  of  the  cor- 
poration. 

Burrill  vs.  President,  etc.,  2  Mete.  (Mass.)  163,  W.  D. 
Smith,  Cas.  Corp.  112;  M'Laughlin  vs.  Railwav  Co., 
8  Mich.  100;  Leggett  vs.  Banking  Co.,  1  N.  J.  Eq.  541; 
Aurora  Agricultural  &  Horticultural  Soc.  vs.  Paddock, 
80  111.  263 ;  Reichwald  vs.  Hotel  Co.,  106  111.  439 ;  Grape 
Sugar  &  Vinegar  Mfg.  Co.  vs.  Small,  40  Md.  395 ;  see 
authorities  cited  supra. 

A  corporation  may  be  bound  by  any  person  who  consum- 
mates an  act  for  the  corporation. 
See  authorities  cited  supra 

However,  if  an  unauthorized  act  is  done  by  any  member, 
officer  or  other  person  for  a  corporation  and  the  same  is  trans- 
acted under  seal,  the  corporation  can  only  ratify  that  char- 
acter of  an  act  by  an  instrument  under  seal.  A  parol  rati- 
fication will  render  a  contract  binding  in  any  parol  contract. 
See  authorities  supra. 


176  INDUSTRIAL     CORPORATIONS 

Where  an  officer  of  the  corporation  issues  negotiable  pa- 
per of  the  corporation,  the  purchaser  buys  at  his  peril  and  the 
rule  of  caveat  emptor  applies.  If,  however,  the  paper  is  issued 
in  the  apparent  scope  of  the  authority  of  the  agent  or  officer 
who  acted  merely  wrongfully  in  the  particular  instance  and 
the  paper  passes  into  the  hands  of  the  bona  fide  purchaser  for 
value  without  notice,  the  purchaser  will  be  protected. 

Chemical  Nat.  Bank  vs.  Wagner,  93  Ky.  525 ;  20  S.  W. 
535;  Page  vs.  Railroad  Co.,  31  Fed.  257;  Wahlig  vs. 
Mfg.  Co.  (City  Ct.  N.  Y.),  9  N.  Y.  Supp.  739;  Mer- 
chants' Nat.  Bank  vs.  Citizens'  Gaslight  Co.,  159  Mass. 
505 ;  34  N.  E.  1083 ;  Credit  Co.  vs.  Howe  Mch.  Co.,  54 
Conn.  357;  8  Atl.  472;  Matson  vs.  Alley,  141  111.  284; 
31  N.  E.  419. 

If  the  corporation  has  no  power  to  enter  into'  a  contract, 
it  has  no  power  to  ratify  it. 

"The  powers  of  agents  of  corporations  to  enter  into  con- 
tracts in  their  behalf  are  limited,  by  the  nature  of  things,  to 
such  contracts  as  the  corporations  are  by  their  charters  au- 
thorized to  make.  .  .  .  The  same  want  of  power  to  give 
authority  to  an  agent  to  contract,  and  thereby  bind  the  cor- 
poration, in  matters  beyond  the  scope  of  their  corporate  ob- 
jects, must  be  equally  conclusive  against  any  attempt  to  ratify 
such  contract.  What  they  can  not  do  directly  they  can  not 
do  indirectly.  They  can  not  bind  themselves  by  the  ratifica- 
tion of  a  contract  which  they  had  no  authority  to  make.  The 
power  of  the  agent  must  be  restricted  to  the  business  which 
the  company  was  authorized  to  do.  Within  the  scope  of  the 
business  which  they  had  power  to  transact,  he,  as  its  agent, 
may  be  authorized  to  act  for  it,  but  beyond  that  he  could  not 
be  authorized,  for  its  powers  extend  no  further." 

Downing  vs.  Road  Co.,  40  N.  H.  230;  1  Cumming,  Cas. 
Priv.  Corp.  148;  Weckler  vs.  Bank,  42  Md.  581. 

§  170.     De  Facto  Directors. 

A  de  facto  director  is  a  director  holding  his  office  under 
color  of  election  and  has  charge  of  the  affairs  of  the  cor- 
poration. Acting  in  such  a  capacity,  such  a  director  is  capa- 
ble of  binding  the  corporation  in  any  manner  within  the  scope 
of  the  director's  power,  and  this  is  true  even  though  the  elec- 


OFFICERS    AND    AGENTS  177 

tion  at  which  he  became  a  director  is  set  aside  and  void  and 
he  is  removed  from  office. 

Mining  Co.  vs.  Anglo-California  Bank,  104  U.  S.  192. 

The  board  of  directors  may  delegate  authority  to  the  com- 
mittee or  to  one  of  their  number,  or  to  some  other  officer,  or 
even  an  outsider,  if  they  choose  to  perform  acts  for  the  cor- 
poration. 

"The  same  want  of  power  to  give  authority  to  an  agent  to 
contract,  and  thereby  bind  the  corporation,  in  matters  beyond 
the  scope  of  their  corporate  objects,  must  be  equally  conclusive 
against  any  attempt  to  ratify  such  contract.  What  they  can 
not  do  directly,  they  can  not  do  indirectly.  They  can  not 
bind  themselves  by  the  ratification  of  a  contract  which  they 
had  no  authority  td  make.  The  power  of  the  agent  must  be 
restricted  to  the  business  which  the  company  was  authorized 
to  do.  Within  the  scope  of  the  business  which  they  had  power 
to  transact,  he,  as  its  agent,  may  be  authorized  to  act  for  it, 
but  beyofad  that  he  could  not  be  authorized,  for  its  powers  ex- 
tend no  further." 

Downing  vs.  Road  Co.,  40  N.  H.  230 ;  1  Gumming,  Cas. 
Priv.  Corp.  148;  Weckler  vs.  Bank,  42  Md.  581. 

Thus  it  may  also  authorize  making  a  mortgage  on  real 
estate,  sign  securities  belonging  to  the  company,  execute 
notes  for  money  loaned  to  the  company. 

Burrill  vs.  Bank,  2  Mete.  (Mass.)  163;  W.  D.  Smith, 
Cas.  Corp.  112;  President,  Directors  &  Company  of 
Northampton  Bank  vs.  Pepoon,  11  Mass.  288;  Leavitt 
vs.  Mining  Co.,  3  Utah  265 ;  1  Pac.  356. 

They,    however,   can    not   delegate   their   own    discretion. 
After  they  determine  to  do  an  act,  they  can  then  order  or  dele- 
gate another  officer  or  person  to  transact  the  business. 
Bliss  vs.  Irrigation  Co.,  65  Cal.  502;  4  Pac.  507. 

§171.     Directors'  Meetings. 

The  rules  governing  the  meetings  of  directors,  when  the 
management  of  a  corporation  is  vested  in  the  directors,  by  the 
charter,  are  first,  that  the  directors  may  meet  and  transact  the 
business  of  the  corporation  in  another  State.  They  must  act, 
however,  always  as  a  board  and  not  in  their  individual  capac- 
13 


178  .INDUSTRIAL  CORPORATIONS 

ity    at    a    meeting    regularly    assembled.      Second,    they    are 
agents  of  the  corporation. 

The  first  or  formation  meeting  of  the  directors  may  be 
held  out  of  the  State. 

Glymont  Imp.  etc.  Co.  vs.  Toler,  80  Md.  278. 

A  by-law  that  regular  directors'  meetings  shall  be  held  in 
the  State  does  not  prevent  special  meetings  outside  the  State. 
Ashley  Wire  Co.  vs.   Illinois   Steel   Co.,   164  111.    149; 
Wright  vs.  Bundy,  11  Ind.  398,  404. 

Where  a  mortgage  of  a  railway  incorporated  by  Indiana 
was  held  valid,  though  executed  in  Ohio. 

Bassett  vs.  Monte -Christo,  etc.  Co.,  15  Nev.  293. 

Where  power  to  issue  bonds  and  mortgage  real  property 
in  Nevada  was  conferred  at  a  meeting  of  directors  held  in  New 
York,  the  corporation  having  been  chartered  by  Pennsylvania, 
— but  here  the  charter  authorized  the  corporation  to  meet  and 
act  at  any  place  in.  the  United  States. 

Ohio,  etc.  R.  R.  vs.  McPherson,  35  Mo.  13. 

Where  calls  for  payment  of  subscriptions  to  stock  made 
by  a  board  of  directors  at  meetings  held  outside  of  the  State 
creating  the  corporation  were  held  to  be  valid. 

Wood  Hydraulic,  etc.  vs.  King,  45  Ga.  34,  in  which  the 
minutes  of  a  meeting  of  directors  held  out  of  the  State  char- 
tering their  company  were  held  to  be  evidence  of  the  acts  of 
the  board  in  making  contracts  in  other  States.  A  directors' 
meeting  out  of  the  State  may  authorize  a  mortgage  on  real 
estate. 

Saltmarsh  vs.  Spaulding,  147  Mass.  224;  Reichwald  vs. 

Commercial  Hotel  Co.,  106  111.  439. 

Galveston,  etc.  R.  R.  vs.  Cowdrey,  11  Wall.  459,  476,  in 
which  it  was  held  that  bona  fide  holders  of  railroad  bonds 
could  not  be  prejudiced  by  the  fact  that  the  mortgage  by 
which  they  were  secured  was  executed  by  virtue  of  a  resolu- 
tion of  directors  at  a  meeting  held  out  of  the  State  which 
chartered  the  road. 


OFFICERS    AND    AGENTS  179 

Bellows  vs.  Todd,  39  Iowa  209,  217,  where  a  conveyance 
of  real  estate  was  authorized. 

Armes  vs.  Conant,  36  Vt.  744;  McCall  vs.  Byram  Mfg. 
Co.,  6  Conn.  428;  Smith  vs.  Alvord,  63  Barb.  415;  Cf. 
Ormsby  vs.  Vermont,  etc.  Co.,  56  N.  Y.  623;  Aspinwall 
vs.  Ohio,  etc.  R.  R.,  20  Ind.  492,  497. 

Corporations  incorporated  in  New  Jersey  were  formerly 
required  by  statute  to  hold  their  directors'  meetings  within 
that  State. 

Hilles  vs.  Parrish,  14  N.  J.  Eq.  380. 

The  president  may  call  a  meeting  of  the  directors  at  a 
place  other  than  the  chief  place  of  business. 

Corbett  vs.  Woodward,  5  Sawyer  403 ;  S.  C.,  6  Fed.  Cas. 
531. 

A  person  who  participates  in  a  directors'  meeting  held  out 
of  the  State  can  not  object  to  it  on  that  ground. 
Wood  vs.  Boney,  21  Atl.  Rep.  574  (N.  J.). 

The  directors  may  hold  their  meetings  outside  of  the  State. 
Missouri,  etc.  Co.  vs.  Reinhard,  114  Mo.  218. 

An  assignment  of  a  corporate  mortgage  may  be  executed 
in  another  State. 

Gray  vs.  Waldron,  101  Mich.  612. 

In  Brockway  vs.  Gadsden,  etc.  Co.,  102  Ala.  620,  a  meet- 
ing of  the  board  of  directors  outside  of  the  State  was  held 
to  be  illegal  under  the  Alabama  statute  which  regulates  such 
meetings.  A  mortgage  authorized  by  the  board  of  directors' 
meeting  held  outside  of  the  State  is  illegal,  unless  such  meet- 
ing was  authorized  or  its  acts  ratified  by  a  vote  of  two  thirds 
of  the  directors  at  a  regular  meeting  in  the  State  in  accordance 
with  the  statute. 

State  Nat.  Bank  vs.  Union  Nat.  Bank,  48  N.  E.  Rep. 
82  (111.). 

Special  meetings  of  the  directors  may  be  held,  although  the 
by-laws  do  not  provide  for  such. 

United  Growers'  Co.  vs.  Eisner,  22  N.  Y.  App.  Div.  1. 


180  INDUSTRIAL     CORPORATIONS 

Meeting  of  board  of  directors,  unless  it  is  a  regular  stated 
meeting,  must  be  upon  due  and  proper  notice  of  the  time, 
place,  and  purpose  of  the  meeting.  A  lack  of  strictness  in 
regard  to  these  plain  requirements  or  necessary  requisites  will 
lead  to  confusion  and  possibly  litigation,  and  it  is  considered 
always  the  better  practice  for  a  secretary,  when  the  meeting 
of  the  board  of  directors  is  necessary,  unless  it  be  a  regular 
meeting,  and  even  then,  to  give  notice  of  the  time,  place,  and 
purpose  of  the  meeting. 

"That  all  the  directors  are  entitled  to  notice,  either  express 
or  implied,  of  any  meeting  at  which  any  business  is  trans- 
acted, in  order  that  the  business  may  be  binding  upon  all  the 
persons  concerned,  admits  of  no  question.  ...  If  the 
meetings  held  are  regular  meetings, — that  is,  such  as  provided 
for  by  the  charter  or  by  the  by-laws,  fixing  time  and  place, — 
then  notice  thereof  is  implied.  Of  all  other  meetings,  espe- 
cially those  at  which  any  business  not  pertaining  to  the  ordi- 
nary affairs  of  the  corporation  is  transacted,  express  notice 
must  be  given  of  the  time  and  place  and  the  object  or  purpose 
of  the  meeting." 

Whitehead  vs.  Hamilton  Rubber  Co.,  52  N.  J.  Eq.  78,  82. 

An  assignment  of  bank  accounts  by  a  corporation  to  its 
president,  as  collateral  security,  is  not  valid  where  no  notice 
was  given  to  all  the  directors  of  the  meeting  authorizing  the 
assignment. 

Whitehead  vs.  Hamilton  Rubber  Co.,  52  N.  J.  Eq.  78. 

A  special  meeting  of  the  directors  is  void  if  no  notice  is 
given  to  absent  directors. 

Hill  vs.  Rich  Hill,  etc.  Co.,  119  Mo.  9. 

A  person  who  is  elected  a  director,  but  does  not  accept, 
need  not  be  notified  of  a  directors'  meeting. 

Whittaker  vs.  Amwell  Nat.  Bank,  52  N.  J.  Eq.  400. 

A  meeting  of  a  majority  of  the  directors  at  an  unusual 

time  and  place  is  not  valid  where  the  minority  had  no  notice. 

First  Nat.  Bank  vs.  Asheville,  etc.  Co.,  116  N.  C.  827. 

The  fact  that  a  director  owns  or  controls  a  majority  of  the 


OFFICERS     AND    AGENTS  181 

stock  does  not  validate  an  illegally  called  meeting  of  the  di- 
rectors, even  though  he  favored  their  action. 
Hill  vs.  Rich  Hill,  etc.  Co.,  119  Mo.  9. 

Where  the  directors  of  a  bank  are  accustomed  to  hold 
directors'  meetings  at  the  bank  whenever  a  quorum  is  pres- 
ent, this  custom  will  be  upheld,  and  a  meeting  is  legal,  al- 
though no  notice  thereof  was  given,  there  being  no  by-law 
or  statute  on  the  subject. 

American  Nat.  Bank  vs.  First  Nat.  Bank,  82  Fed.  Rep. 
961. 

Directors  are  required  to  take  notice  of  an  annual  meet- 
ing, and  no  notice  need  be  given  of  an  adjournment  thereof. 
Western  Imp.  Co.  vs.  Des  Moines  Nat.  Bank,  72  N.  W. 
Rep.  657  Iowa. 

Even  though  na  notice  is  given  to  a  director  of  a  meet- 
ing of  the  board,  yet  where  the  matter  passed  upon  by  the 
board  is  one  which  he  would  be  disqualified  from  voting  upon, 
the  meeting  is  legal. 

Troy  Min.  Co.  vs.  White,  74  N.  W.  Rep.  236  S.  D. 

An  assignment  for  the  benefit  of  creditors,  authorized  at 
a  meeting  of  the  board  of  directors  where  a  part  of  the  di- 
rectors were  absent  and  had  no  notice  thereof,  is  not  valid. 
Simon  vs.  Sevier  Assoc.,  54  Ark.  58. 

Notice  of  a  directors'  meeting  need  not  be  given  to  a  di- 
rector who  resides  abroad,  nor  to  another  director  who  is 
traveling  abroad.  The  court,  however,  refused  to  lay  down 
the  broad  rule  that  no  notice  in  any  case  need  be  given  to 
directors  who  are  abroad. 

Halifax,  etc.  Co.  vs.  Francklyn,  62  L.  T.  Rep.  563. 

Notice  of  a  directors'  meeting  can  not  be  waived  in  ad- 
vance by  a  director  where  the  time  and  purpose  of  the  meet- 
ing have  not  yet  been  determined  upon. 

Re  Portuguese,  etc.  Mines,  L.  R.  42  Ch.  D.  160. 

Where  three  of  seven  directors  are  non-residents,  one  hav- 
ing sold  his  stock,  one  traveling,  and  one  inaccessible  for 


182  INDUSTRIAL     CORPORATIONS 

immediate  notice,  the  four  remaining  directors  may  hold  a 
meeting  and  authorize  an  assignment  of  the  corporate  prop- 
erty for  the  benefit  of  creditors.  The  assignment  was  held 
to  be  legal,  the  traveling  director  and  the  inaccessible  director 
having  subsequently  voted  in  a  meetin"  for  the  ^election  of  an 
assignee. 

National  Bank  of  Commerce  vs.  Shumway,  49  Kan.  224. 

A  mortgage  authorized  at  a  directors'  meeting  at  which 
four  were  present  and  the  'other  received  no  notice  is  illegal, 
the  giving  of  notice  being  possible,  and  there  being  no  ne- 
cessity for  immediate  action. 

Bank  of  Little  Rock  vs.  McCarthy,  55  Ark.  473. 

An  assignment  for  the  benefit  of  creditors,  made  by  order 
of  a  directors'  meeting  at  which  three  directors  were  present 
.and  the  other  two  were  not  notified,  is  invalid,  and  no  bar 
to  a  creditor's  action  to  collect  unpaid  subscriptions. 

Doernbecher  vs.  Columbia,  etc.  Co.,  21  Oreg.  573. 

Where  a  directors'  meeting,  according  to  the  by-laws,  may 
be  called  by  the  president,  or  if  there  is  no  president,  by  two 
directors,  the  two  directors  can  not  call  it,  even  if  the  presi- 
dent refuses  to  do  so.  The  acts  of  a  meeting  of  a  board  so 
called  are  illegal,  a  majority  of  the  directors  only  being  pres- 
ent. 

Smith  vs.  Dorn,  96  Cal.  73. 

A   director  is   entitled  to  notice  of  a   meeting  to  elect   a 
president.     Undue  haste  and  failure  to  give  notice  will  suffice 
to  set  the  election  aside.     A  subsequent  meeting  of  the  board 
can  not  ratify  it.     The  election  must  be  held  over  again. 
State  vs.  Smith,  15  Oreg.  98;  53  Pac.  Rep.  1024. 

A  notice  of  a  school  trustees'  meeting  need  not  be  given 
to  trustees  out  of  the  State  who  could  not  have  attended 
anyway. 

Porter  vs.  Robinson,  30  Hun.  209. 

In  Harding  vs.  Van  de  water,  40  Cal.  77,  a  note  given  for 
an  assessment  upon  a  subscription  which  was  called  at  a 


OFFICERS     AND    AGENTS  183 

special  meeting  of  the  board  of  trustees  of  a  mining  company, 
of  which  two  of  the  trustees  had  no  notice,  was  held  to  be  void. 
In  Farwell  vs.  Houghton  Copper,  etc.,  8  Fed.  Rep.  66, 
it  was  held  that  one  who  had  been  a  shareholder  and  purchased 
all  the  property  of  the  company  at  a  meeting  of  the  directors 
held  without  notice,  at  which  he  was  present  and  knew  that 
one  director  was  absent,  was  bound  to  know  that  notice  to 
such  absent  director  was  necessary,  and  that  he  was  not  a 
bona  fide  purchaser  without  notice. 

Lane  vs.  Brainerd,  30  Conn.  565,  holding  that  the  corporate 
record  of  a  meeting  at  which  a  quorum  was  present  was  pre- 
sumptive proof  that  all  the  directors  had  been  duly  notified, 
whether  living  in  the  State  or  elsewhere. 

Where  the  by-laws  provided  for  special  meetings,  the  time 
and  place  of  which  were  to  be  fixed  by  notices  countersigned 
by  the  secretary,  it  was  held  that  a  meeting  of  the  requisite 
number  of  directors  without  previous  agreement  to  meet  on 
any  fixed  day  or  hour  was  not  a  meeting  duly  convened 
within  the  charter  provision. 

Moore  vs.  Hammond,  6  Barn.  &  C.  456. 
To  same  effect  in  municipal  corporation  cases. 

Smyth  vs.  Darley,  2  H.  L.  Cas.  789;  Rex  vs.  Carlisle, 

1  Stra.  385. 

An  adjourned  meeting  of  directors  may  act  to  the  same  ex- 
tent that  the  original  meeting  might  have  acted. 

Smith   vs.    Law,  21    N.   Y.  296;   Wills   vs.   Murray,   4 
Exch.  843. 

A  by-law  enacted  by  the  directors  in  reference  to  the  call- 
ing of  a  directors'  meeting,  even  if  not  complied  with,  does 
not  invalidate  the  meeting. 

Samuel  vs.  Holladay,  Woolw.  400;  S.  C,  21  Fed.  Cas. 

306. 

A  quorum  of  directors  may  bind  the  corporation,  although 
the  other  directors  are  not  notified,  there  being  no  by-law 
or  charter  provision  requiring  notice. 

Edgerly  vs.  Emmerson,  23  N.  H.  555;  Contra  Dispatch 
Line  vs.  Bellamy  Mfg.  Co.,  12  N.  H.  205. 


184  INDUSTRIAL    CORPORATIONS 

An  assessment  made  at  an  irregularly  called  directors' 
meeting  is  void. 

Thompson  vs.  Williams,  76  Cal.  153. 

Two  out  of  three   directors  can  not  authorize  a  chattel 
mortgage,  the  third  not  having  been  notified  of  the  meeting. 
The  mortgagee  was  one  of  the  directors. 
Doyle  vs.  Mizner,  42  Mich.  332. 

A  corporate  receiver  can  not  object  to  a  contract  on  the 
ground   that   the   directors'    meeting   authorizing   it   was   not 
properly    convened,   but    the    receiver    may    avoid   corporate 
notes  issued  contrary  to  express  statute. 
Leavitt  vs.  Yates,  4  Edw.  Ch.  134. 

Bonds  issued  under  authority  of  a  meeting  of  two  com- 
missioners of  a  town  without  notice  to  a  third  commissioner 
are  not  valid. 

Pike  County  vs.  Rowland,  94  Pa.  St.  238. 

In  Kersey,  etc.  Co.  vs.  Oil,  etc.  R.  R.,  12  Phila.  374,  a  lease 
was  declared  void  because  it  was  authorized  only  by  a  meet- 
ing of  directors,  of  which  part  of  the  directors  had  no  notice 
and  were  not  present. 

A  special  meeting  of  an  executive  committee  is  irregular 
unless  notice  is  given  to  each  member. 

Metropolitan,  etc.  Co.  vs.  Domestic,  etc.  Co.,  43  N.  J. 
Eq.  626. 

Where  a  subsequent  meeting  of  directors  expressly  rati- 
fies the  acts  of  a  preceeding  meeting,  any  defect  in  the  notice 
given  of  the  latter  meeting  is  cured. 

County  Court  vs.  Baltimore,  etc.  R.  R.,  35  Fed.  Rep.  161. 

Acts  of  a  board  of  directors,  no  notice  having  been  given 
to  absent  directors,  may  be  valid  by  acquiescence. 

Reed  vs.  Hayt,  51  N.  Y.  Super.  Ct.  121 ;  aff'd,  109  N.  Y. 
659. 

Although  an  allotment  of  stock  may  be  illegal  by  reason  of 
notice  not  having  been  given  of  a  directors'  meeting,  yet  the 


OFFICERS    AND    AGENTS  185 

allotment  may  be  confirmed  by  a  subsequent  legally  called 
meeting. 

Re  Portuguese,  etc.  Mines,  L.  R.  45  Ch.  D.  16. 

A  person  who  commits  a  trespass  on  the  property  of  a 
corporation  can.  not  question  the  regularity  of  a  contract  of 
such  corporation,  so  far  as  such  regularity  turns  on  the  action 
of  a  directors'  meeting,  or  meeting  of  an  executive  committee, 
or  assent  of  three  fifths  of  the  stockholders,  as  required  by 
statute. 

Farnsworth  vs.  Western,  etc.  Co.,  6  N.  Y.  Supp.  735. 

"The  evidence  that  a  day  was  fixed  by  common  consent  is 
sufficient  to  show  notice  to  all  of  the  meetings  on  that  day." 

"It  was  wholly  immaterial  in  what  way  the  day  of  the 
regular  meetings  was  fixed." 

Atlantic,  etc.  Ins.  Co.  vs.  Sanders,  36  N.  H.  252,  269. 

In  a  case  where  directors  were  empowered  to  meet  once 
a  week  at  their  office,  without  notice  or  summons,  but  on  such 
day  and  at  such  hour  as  they  should  from  time  to  time  agree 
upon,  it  was  held  that  a  resolution  come  to  by  a  quorum  assem- 
bled without  notice  was  invalid,  inasmuch  as  no  day  or  hour 
for  the  meeting  of  the  directors  had  ever  been  fixed. 
Moore- vs.  Hammond,  6  B.  &  C.  456. 

If  the  board  meeting  be  especially  convened,  the  general 
rule  is  that  notice  must  be  served  upon  every  member  entitled 
to  be  present. 

Pike  County  vs.  Rowland,  94  Pa.  St.  238. 

Mandamus  lies  to  compel  vestrymen  to  attend  a  meeting 
when  by  reason  of  dissensions  they  decline  to  do  so. 
People  vs.  Winans,  9  N.  Y.  Supp.  249. 

Notice  to  all  is  necessary,  although  a  quorum  is  present. 

Johnston  vs.  Jones,  23  N.  J.  Eq.  216,  where  the  meeting 
was  for  the  purpose  of  calling  a  stockholders'  meeting.  Con- 
cerning the  difference  between  the  position  of  municipal  cor- 
poration officials  and  the  officers  of  a  private  corporation,  see 
Wallace  vs.  Walsh,  125  N.  Y.  26,  36. 


186  INDUSTRIAL     CORPORATIONS 

A  recess  may  be  taken  by  a  board  without  formal  action, 
and  two  meetings  on  the  same  day  may  be  construed  as  one 
meeting  with  a  recess. 

State  vs.  Powell,  70  N.  W.  Rep.  592  (Iowa). 

Notice  should  contain  specifically  the  time,  place,  and 
business  to  be  transacted  and  be  given  a  reasonable  time 
before  the  hour  of  meeting. 

Re  Argus  Co.,  138  N.  Y.  557. 

Notice  of  directors'  meeting  given  on  the  same  day  is 
insufficient.  The  court  said: — 

"Prima  facie  this  was  not  a  reasonable  time.  The  man- 
agers are  all  reported  as  business  men,  who  can  not  be  pre- 
sumed to  be  ready  to  drop  their  own  affairs  and  attend  off- 
hand on  such  a  notice.  One  full  day  in  advance  of  the  time 
fixed  is  as  little  as  the  law  could  presume  to  be  reasonable, 
and  in  many  cases  that  would  be  too  short." 

Mercantile  Library  Co.  vs.  Pittsburgh  Library  Assoc., 
173  Pa.  St.  30;  Re  Homer,  etc.  Mines,  L.  R.  39  Ch.  D. 
546;  Corbett  vs.  Woodward,  5  Sawyer  403;  Williams 
vs.  German,  etc.  Ins.  Co.,  68  111.  387;  People  vs.  Albany 
Med.  Coll.,  26  Hun.  348 ;  aff'd,  89  N.  Y.  635 ;  Covert  vs. 
Rogers,  38  Mich.  363;  Chase  vs.  Tuttle,  55  Conn.  455. 

It  is  immaterial,  however,  whether  the  purpose  of  the 
meeting  is  stated,  unless  it  is  required  by  the  by-laws.  When 
a  meeting  is  called,  if  the  purpose  is  not  stated,  it  will  be  un- 
derstood that  the  meeting  will  transact  any  business  and 
consider  any  matter  pertaining  to  the  affairs  of  the  corpora- 
tion that  may  come  before  it. 

In  re  Argus  Co.,  138  N.  Y.  557;  34  N.  E.  388,  394. 

In  the  absence  of  any  evidence  to  the  contrary,  it  will  be 
presumed  that  all  of  the  directors  had  notice. 

Sargent  vs.  Webster,  13  Mete.  (Mass.)  497;  Leavitt  vs. 
Mining  Co.,  3  Utah  265 ;  1  Pac.  365 ;  Chase  vs.  Tuttle, 
55  Conn.  455;  12  Atl.  874. 

§  172.     Quorum  Directors. 

Where  a  quorum  of  the  board  of  directors  is  stated  in  the 
charter,  and  such  a  number  is  given  power  to  transact  the 


OFFICERS     AND    AGENTS  187 

business  of  the  corporation,  the  unanimous  concurrence  of 
that  number  at  a  casual  meeting  and  without  notice  to  the 
others  will  be  sufficient  to  bind  the  corporation,  unless  notice 
is  expressly  required  by  the  charter  or  by-laws. 

Edgerly  vs.  Emmerson,  23  N.  H.  555;  State  vs.  Smith. 

48  Vt.  266;  Chase  vs.  Tuttle,  55  Conn.  455;  12  Atl.  874. 

Otherwise  all  the  members  of  the  board  of  directors  must 
have  notice  of  the  proposed  meeting  unless  it  is  a  regular  meet- 
ing of  which  he  should  know  and  at  which  it  is  his  duty  to 
be  present. 

Dispatch  Line  of  Packets  vs.  Bellamy  Mfg.  Co.,  12  N. 

H.  205. 

If,  however,  all  the  directors  are  present  and  transact  a 
given  piece  of  business,  it  matters  not  whether  it  was  a  gen- 
eral or  special  meeting,  it  will  bind  the  company  and  is  im- 
material whether  notice  was  required  by  the  by-laws  or  not. 

Minneapolis  Times  Co.  vs.  Nimocks,  53  Minn.  381 ;  55 

N.  W.  546. 

The  board  of  directors,  unlike  the  stockholders,  require  a 
majority  of  their  number  to  constitute  a  quorum. 
Sargent  vs.  Webster,  13  Mete.  (Mass.)  497. 

A  less  number  of  the  board  of  directors  have  but  one 
power,  and  that  is  to  adjourn.  A  majority  will  constitute  a 
quorum  unless  more  are  expressly  required. 

Sargent  vs.  Webster,  supra ;   Leavitt  vs.   Mining  Co., 

3  Utah  265 ;  1  Pac.  356. 

A  majority  of  the  board  of  directors  will  constitute  a 
quorum,  and  a  majority  of  the  quorum  will  be  sufficient  to 
transact  any  business  and  decide  any  question  upon  which 
the  board  may  lawfully  enter. 

Sargent  vs.  W'ebster,  13  Mete.  (Mass.)  497;  Buell  vs. 

Buckingham,  16  Iowa  284;  Leavitt  vs.  Mining  Co.,  3 

Utah  265 ;  1  Pac.  356. 

Many  attempts  have  been  made  to  sustain  a  vote  of  the 
board  of  directors  acting  in  a  separate  and  integral  capacity, 
but  it  is  now  well  settled  that  the  board  of  directors  must 


188  INDUSTRIAL     CORPORATIONS 

act  as  a  board,  a  majority  must  be  present,  and  the  oppor- 
tunity given  to  confer  and  exchange  ideas.  They  can  not 
vote  or  act  in  any  other  manner  or  capacity  and  bind  the 
corporation. 

Tradesman  Pub.  Co.  vs.  Knoxville  Car  Wheel  Co.,  95 
Tenn.  634. 

The  verbal  assent  of  directors  to  the  execution  of  a  mort- 
gage is  not  good. 

Alta  Silver  Min.  Co.  vs.  Alta  Placer  Min.  Co.,  78  Cal. 
629. 

Where  the  directors  own  all  the  stock  of  a  corporation, 
they  may  authorize  its  president  to  sell  its  assets,  and  the 
fact  that  the  authority  was  not  given  at  a  regular  directors' 
meeting  is  immaterial. 

Jordan  vs.  Collins,  107  Ala.  572. 

A  mere  street  conversation  between  the  directors,  by  which 
they  "agree"  that  the  subscriptions  shall  be  called,  is  not  a 
sufficient  call. 

Branch  vs.  Augusta  Glass  Works,  95  Ga.  573. 

A  separate  assent  of  a  township  committee  to  the  con- 
struction of  a  street  railway  is  illegal. 

West  Jersey  Traction  Co.  vs.  Camden  Horse  R.  R.,  53  N. 
J.  Eq.  163. 

Separate  action  of  the  directors  without  a  meeting  is  not 
good. 

Limer  vs.  Traders'  Co.,  28  S.  E.  Rep.  730  W.  Va. 

Separate  acquiescence  of  the  directors  is  not  sufficient. 
Sanderson  vs.  Tinkham,  etc.  Co.,  83  Iowa  446. 

The  directors  of  a  religious  corporation  can  not  act  as  a 
board  by  the  separate  assents  of  the  members  to  the  act  in 
question. 

Columbia  Bank  vs.  Gospel  Tabernacle,  127  N    Y.  361. 

The  separate  assent  of  the  directors  to  a  mortgage  is  not 
good. 

Duke  vs.  Markham,  105  N.  C.  131. 


OFFICERS    AND    AGENTS  189 

Directors  can  act  in  behalf  of  the  corporation  only  as  a 
board.     Their  power  is  not  joint  and  several,  but  joint  only. 
Buttrick  vs.  Nashua,  etc.  R.  R.,  62  N.  H.  413. 

Directors  can  not  act  except  as  a  board. 

North  Hudson,  etc.  Assoc.  vs.  Childs,  82  Wis.  460. 

Directors  can  act  as  such  in  meeting  only.  Their  indi- 
vidual assent  is  not  sufficient. 

State  vs.  People's,  etc.  Assoc.,  42  Ohio  St.  579 ;  Junction 
R.  R.  vs.  Reeve,  15  Ind.  236;  Stoystown,  etc.  Turnp. 
Co.  vs.  Graver,  45  Pa.  St.  386. 

A  bargain  and  sale  deed  of  corporate  property,  authorized 
and  executed  separately  and  singly  by  all  the  directors  with- 
out a  board  meeting,  is  void. 

Baldwin  vs.  Canfield,  26  Minn.  43 ;  Gashwiler  vs.  Willis, 

33Cal.  11. 

Separate  and  single  consent  of  a  quorum  of  directors  to 
the  secretary's  execution  of  a  bond  is  void. 

D'Archy  vs.  Tamar,  etc.  Ry.,  L.  R.  2  Exch.  158. 

The  assent  of  a  mere  majority  of  the  board,  given  singly 
and  separately,  gives  no  authority  to  a  cashier  to  do  an  act 
outside  of  his  customary  duties. 

Elliot  vs.  Abbot,  12  N.  H.  549. 

Where  a  mortgage  is  executed  by  order  of  directors  as- 
senting apart  and  not  in  a  meeting,  and  is  executed  by  a 
president  and  secretary  who  were  elected  by  the  stockholders 
at  a  meeting  not  properly  called,  the  stockholders  having  no 
power  to  elect  such  officers  in  any  case,  the  mortgage  is  not 
good. 

Re  St.  Helen  Mill  Co.,  3  Sawy.  88. 

A  pledge  of  corporate  securities  to  raise  money  is  legal 
where  six  of  the  eight  directors  consented,  even  though  no 
meeting  was  held. 

Hubbard  vs.  Camperdown  Mills,  26  S.  C.  581. 

Directors  may  bind  the  corporation  by  their  separate  ap- 


190  INDUSTRIAL     CORPORATIONS 

proval  of  claims  when  they  have  been  accustomed  to  do  so. 
Longmont,  etc.  Co.  vs.  Coffman,  11  Col.  551. 

The  separate  assent  of  the  board  of  trustees  of  a  religious 
corporation  to  the  execution  of  a  note  is  void.  They  must 
meet. 

People's  Bank  vs.  St.  Anthony's,  etc.  Church,  109  N.  Y. 

512. 

An  assignment  for  the  benefit  of  creditors  authorized  by 
the  directors  acting  separately  and  not  as  a  board  is  invalid. 
Calumet  Paper  Co.  vs.  Haskell,  etc.  Co.,  45  S.  W.  Rep. 
1115  Mo. 

Where  an  officer  is  sued  for  malfeasance  in  office,  it  is  no 
defense  that  his  acts  were  authorized  by  directors  who  did 
not  meet  as  a  board,  but  separately  and  singly  assented  to 
acts.  Directors  bind  the  corporation  by  their  votes  only  when 
they  meet  as  a  board. 

"The  law  proceeds  upon  the  theory  that  the  directors  shall 
meet  and  counsel  with  each  other,  and  that  any  determination 
affecting  the  corporation,  shall  only  be  arrived  at  and  ex- 
pressed after  a  consultation  at  a  meeting  of  the  board  attended 
by  at  least  a  majority  of  its  members." 

National  Bank  vs.  Drake,  35  Kan.  576. 

A  tax  which  is  assessed  by  two  trustees  in  meeting  as- 
sembled, who  then  obtain  the  separate  and  private  assent  of 
the  third  trustee,  is  void. 

Keeler  vs.  Frost,  22  Barb    400;  Schumm  vs.  Seymour, 

24  N.  J.  Eq.  143. 

The  members  of  a  board  of  highway  commissioners  can 
not  authorize  or  ratify  a  contract  by  separate  approval.  A 
meeting  is  necessary. 

Taymouth  vs.  Koehler,  35  Mich.  22. 

The  majority  of  a  school-board  can  not  act  separately  and 
singly,  no  meeting  being  held. 

Harrington  vs.  District,  etc.,  47  Iowa  11. 

The  separate  consent  of  three  directors  was  held  not 
good  in  Bosanquet  vs.  Shortridge,  4  Exch.  699. 


OFFICERS    AND    AGENTS  191 

A  due-bill  running  from  the  corporation  to  a  person  and 
signed  by  the  directors  can  not  be  defeated  by  showing  that 
the  directors  did  not  meet,  but  signed  it  separately  and  singly. 

Sampson  vs.  Bowdoinham,  etc.  Corp.,  36  Me.  78;  Col- 

lin's  Claim,  L.  R.  12  Eq.  246. 

The  execution  of  a  replevin  bond  by  the  president  for  the 
corporation  is  legal,  a  majority  of  the  directors  singly  and 
separately  assenting  thereto. 

Bank  of  Middlebury  vs.  Rutland,  etc.  R.  R.,  30  Vt.  159, 
where  Redfield,  Ch.  J.,  said: — 

"The  cases  are  numerous  where  the  consent  of  a  majority 
of  the  directors  given  separately  has  been  held  binding  upon 
the  company." 

Probably  in  these  last  cases  the  contract  would  have  been 
binding,  even  if  the  directors  had  not  acted  at  all.  See  also 
Cammeyer  vs.  United,  etc.  Churches,  2  Sandf.  Ch.  186,  229, 
holding  that  the  trustees  must  meet  in  order  to  act,  and  that 
their  affirmative  vote  in  a  stockholders'  or  general  assemblage 
is  not  sufficient.  Collective  action  as  a  board,  and  not  indi- 
vidual action  as  a  member  of  the  board,  is  necessary  to  bind 
the  corporation. 

Alleghany   County  Workhouse  vs.   Moore,  95   Pa.  St. 

408;  Twelfth  St.  Market  Co.  vs.  Jackson,  103  Pa.  St. 

273. 

Where  there  are  but  two  stockholders,  and  they  are  di- 
rectors, and  no  directors'  or  stockholders'  meeting  has  been 
held  since  the  organization  meeting,  and  these  two  have  car- 
ried on  the  business  as  though  it  was  a  partnership  concern, 
a  bona  fide  assignment  by  these  two  persons  in  the  name  of 
the  corporation  to  secure  preferred  creditors  of  the  corpora- 
tion is  good,  although  no  corporate  seal  was  used  and  no  meet- 
ings were  held  authorizing  the  act. 

Teitig  vs.  Boseman,  12  Mont.  404. 

When  all  the  officers  assent  to  a  money  obligation  being 
given  in  the  corporate  name  by  the  chief  officer,  the  prioress, 
the  educational  corporation  is  bound. 


192  INDUSTRIAL     CORPORATIONS 

Louisville,  etc.  R.  R.  vs.  St.  Rose  Literary  Soc.,  91  Ky. 
395. 

See  also  Re  Great  Northern,  etc.  Works,  L.  R.  44  Ch.  D. 
472,  drawing  a  distinction  where  all  of  the  directors  assent. 
Directors  can  not  act  singly. 

Morrison  vs.  Wilder  Gas  C,  40  Atl.  Rep.  542  Me. 

Where  some  of  the  directors  agree  privately  among  them- 
selves to  pay  for  certain  things  needed  by  the  corporation, 
and  the  latter  uses  them,  they  alone  are  liable  for  the  price 
thereof. 

Lyndon,  etc.  Co.  vs.  Lyndon,  etc.  Inst.,  22  Atl.  Rep. 

575  Me. 

Directors  have  no  power  to  act  by  proxy ;  this  is  an  au- 
thority that  belongs  to  the  stockholders  only. 

Perry  vs.  Tuscaloosa,  etc.  Co.,  93  Ala.  364 ;  Craig  Medi- 
cine Co.  vs.  Merchants'  Bank,  59  Hun.  561  ;  Re  Portu- 
guese, etc.  Co.,  L.  R.  42  Ch.  D.  160;  McLaren  vs. 
Fisken,  28  Grant,  Ch.  (Can.)  352;  Attorney-General  vs. 
Scott,  1  Vesey  413;  Dudley  vs.  Kentucky  High  School, 
9  Bush  (Ky.)  576. 

Where  a  notice  of  the  time,  place,  and  purpose  of  the 
meeting  is  given  and  a  majority  of  the  board  appears,  a  ma- 
jority of  that  majority  of  the  board  may  bind  the  corporation. 

Wells  vs.  Railway,  etc.  Co.,  19  N.  J.  Eq.  402 ;  Cram  vs. 

Bangor,  etc.,  12  Me.  354;  Cahill  vs.  Kalamazoo,  etc.  Ins. 

Co.,  2  Doug.  (Mich.)  124;  Ex  parte  Willcocks,  7  Cow. 

402;  People  vs.  Walker,  2  Abb.  Pr.  421;  Sargent  vs. 

Webster,  54  Mass.  497. 

If  only  a  minority  of  the  board  are  present,  the  acts  are 
not  valid. 

Lockwood  vs.  Mechanics'  Nat.  Bank,  9  R.  I.  308 ;  Ernest 
vs.  Nicholls,  6  H.  L.  Cas.  401,  417;  Price  vs.  Grand,  etc. 
R.  R.,  13  Ind.  58;  Ridley  vs.  Plymouth,  etc.  Co.,  2  Exch. 
711. 

A  director  who  is  present  but  does  not  vote  is  counted  in 
the  negative. 

Commonwealth  vs.  Wickersham,  66  Pa.  St.  134. 


OFFICERS     AND    AGENTS  193 

The  majority  of  a  board  of  directors  constitute  a  quorum, 
and  a  majority  of  the  quorum  decide  the  action  of  the  board. 
Leavitt  vs.  Oxford,  etc.  Co.,  3  Utah  265. 

A  majority  of  a  quorum  of  directors  bind  the  corporation. 
Buell  vs.  Buckingham,  16  Iowa  284. 

Where  the  charter  says  five  shall  constitute  a  quorum  of 
directors,  a  mortgage  executed  under  the  authority  of  a  di- 
rectors' meeting  when  only  four  are  present  is  void. 
Holcomb  vs.  Bridge  Co.,  9  N.  J.  Eq.  457. 

A  quorum  of  the  directors  is  presumed  to  have  been 
present. 

Sargent  vs.  Webster,  54  Mass.  497. 

A  majority  of  the  trustees  are  necessary  to  constitute  a 
quorum. 

State  vs.  Porter,  113  Ind.  79. 

A  by-law  can  not  authorize  less  than  a  majority  to  act 
when  the  charter  requires  a  majority. 
State  vs.  Curtis,  9  Nev.  325. 

A  by-law  of  the  corporation  authorizing  a  quorum  of  five 
directors,  with  the  president,  to  transact  ordinary  business,  is 
valid,  though   there  are  twenty-three  directors. 
Hoyt  vs.  Thompson,  19  N.-Y.  207. 

Where    by    resolution    of    the    board    four    constitute    a 
quorum,  an  act  at  a  board  of  three  is  not  binding. 
Ducarry  vs.  Gill,  4  Car.  &  P.  121. 

Where  there  are  eight  vestrymen  and  the  statute  requires 
five  to  constitute  a  quorum,  four  can  not  act,  although  there 
are  three  vacancies  in  the  board. 

Moore  vs.  Rector,  etc.  4  Abb.  N.  Cas.  51. 

When  the  presence  of  the  president  is  by  law  necessary  to 
the  meeting  of  an  executive  committee,  a  meeting  without 
him  can  not  bind  the  corporation. 

Corn   Exch.  Bank  vs.  Cumberland  Coal  Co.,  1   BOsw. 

436. 

14 


194  INDUSTRIAL     CORPORATIONS 

Where  two  out  of  six  directors  have  been  accustomed  to 
act  as  a  quorum,  a  forfeiture  of  stock  by  two  is  legal. 
Lyster's  Case,  L.  R.  4  Eq.  233. 

The  acts  of  less  than  a  quorum  are  valid  if  they  are  sub- 
sequently ratified  by  a  quorum. 

Austin's  Case,  24  L.  T.  Rep.  (N.  S.)  932. 
A  lease  taken  by  a  meeting  of  a  board  of  directors  at  which 
no  quorum  was  present  is  ratified  by  the  acquiescence  of  two 
boards  elected  in  subsequent  years,  with  knowledge  and  no 
objection. 

Oregon  Ry.  vs.  Oregon  Ry.  &  Nav.  Co.,  28  Fed.  Rep. 
505. 

"Where  there  is  a  definite  body  in  a  corporation,  a  majority 
of  that  definite  body  must  not  only  exist  at  the  time  when  any 
act  is  to  be  done  by  them,  but  a  majority  of  that  body  must 
attend  the  assembly  where  such  act  is  done." 

Rex.  vs.  Miller,  6  T.  R.  268,  per  Lord  Kenyon. 

A  custom  is  legal  which  allows  three  to  constitute  a  quorum 
of  a  board  of  nine  directors. 

Re  Regents',  etc.  Co.,  W.  N.  1867,  p.  79. 
An  allotment  of  shares  by  a  board  of  two  when  the  statute 
requires  three  invalid.     The  subscription  is  not  collectible. 

Re  British,  etc.  Co.,  59  L.  T.  Rep.  291. 
Where  the  charter  makes  a  majority  of  directors  a  quorum, 
a  minority  can  not  fill  a  vacancy  in  the  board. 

State  vs.  Curtis,  9  Nev.  325. 

Although  a  meeting  of  directors  is  legally  called,  yet,  if  a 
quorum  does  not  attend,  those  who  do  attend  can  not  adjourn 
to  another  day.  It  requires  a  quorum  to  adjourn. 

McLaren  vs.  Fisken,  28  Grant,  Ch.  (Can.)  352. 
A  managing  committee  of  eight  can  not  act  at  a  meeting 
of  six  only. 

Brown  vs.  Andrew,  13  Jur.  938. 

A  quorum  of  the  directors  must  be  present  to  act,  and  this 
quorum  consists  of  a  majority. 

Craig  Medicine  Co.  vs.  Merchants'  Bank,  59  Hun.  561. 


OFFICERS     AND     AGENTS  195 

In  a  municipal  corporation,  if  all  the  board  are  present  and 
four  vote  one  way,  while  the  other  four  do  not  vote  at  all, 
the  vote  prevails.  It  is  a  majority  of  a  quorum. 

State  vs.  Dillon,  125  Ind.  136. 

Where  the  record  shows  that  two  of  the  four  directors 
present  voted  aye  and  one  nay,  and  the  other  director  was  in 
the  chair,  and  the  motion  was  declared  carried,  the  law  pre- 
sumes that  the  chairman  voted  aye. 

Rollins  vs.  Shaver,  etc.  Co.,  80  Iowa  380. 
If  all  six  members  of  a  city  council  are  present,  three  may 
pass  a  resolution,  although  the  other  three  do  not  vote. 

Rushville  Gas  Co.  vs.  Rushville,  121  Ind.  206. 
A  director  who  is  chosen  by  the  board  when  less  than  a 
quorum   is   present   may   be   treated   as   not   a   director,   even 
though  he  has  met  with  the  board  frequently  when  the  board 
was  present.    His  remedy  is  not  mandamus.  ' 

People  vs.  New  York,  etc.  Asylum,  7  N.  Y.  St.  Rep.  277. 

A  meeting  of  four  legally  elected  and  three  illegally  elected 

directors  of  a  corporation  is  not  such  a  meeting  as  sustains 

an  action  for  salary  by  the  president  who  was  elected  by  them. 

Waterman  vs.  Chicago,  etc.  R.  R.,  139  111.  638. 
The  confirmation  by  the  board  of  directors  of  resolutions 
passed  by  a  meeting  not  containing  a  quorum  relates  back, 
and  is  as  if  the  resolutions  were  regularly  passed  in  the  first 
place. 

Re  Portuguese,  etc.  Mines,  L.  R.  45  Ch.  D.  16. 
Two  directors  can  not  transact  business  when  there  are 
four  directors. 

Re  Portuguese,  etc.  Co.,  L.  R.  42  Ch.  D.  160. 
A  by-law  may  make  five  a  quorum  out  of  twenty-three 
directors  where  the  statute  is  silent  on  the  subject. 

Hoyt  vs.  Sheldon,  3  Bosw.  267. 

In  an  action  by  an  insurance  company  to  collect  an  as- 
sessment, it  is  no  defense  that  losses  were  allowed  at  meet- 
ings of  the  directors  where  no  quorum  was  present. 

Atlantic,  etc.  Ins.  Co.  vs.  Sanders,  36  N.  H.  252,  269. 


196  INDUSTRIAL     CORPORATIONS 

The  majority  of  the  quorum  may  decide  a  question  and 
a  plurality  may  elect  any  officer,  unless  otherwise  provided 
by  charter  or  by-laws  or  law. 

Ex  parte  Willocks,  7   Cow.  410;   Coolev,   Const.   Lim. 

(4th  Ed)   141;  Oldknow  vs.  Wainrightf  2  Burr.  1017; 

Booker  vs.  Young,  12  Gratt.  (Va.)  303. 

Where  twelve  were  present,  and  one  candidate  receives 
six  votes,  another  four,  and  another  one,  and  one  blank,  there 
is  no  election. 

People  vs.  Conklin,  7  Hun.  188. 

The  president  of  the  board  may  cast  the  deciding  vote 
where  there  is  a  tie,  but  not  so  if  he  has  already  .cast  his  vote 
once.  A  by-law  can  not  give  him  this  right. 

State  vs.  Curtis,  9  Nev.  325. 

The  president  does  not  have,  in  addition  to  his  first  vote, 
a  casting  vote  as  president. 

Toronto,  etc.  Co.  vs.  Blake,  2  Ont.  (Can.)  175. 
A  director  is  unlike  a  stockholder  in  that  he  is  disqualified 
to  vote  upon  any  resolution  in  which  he  is  personally  inter- 
ested. 

"All  the  -authorities  agree  that  it  is  essential  that  the  ma- 
jority of  the  quorum  of  a  board  of  directors  shall  be  disin- 
terested in  respect  to  the  matters  voted  upon." 

Miner  vs.  Ice  Co.,  93  Mich.  97;  53  N.  W.  218;»Smith  vs. 
Association,  78  Cal.  289;  20  Pac.  677;  Copeland  vs. 
Manufacturing  Co.,  47  Hun.  (N.  Y.)  235. 

§  173.     Evidence  of  the  Meetings  of  the  Board  of  Directors. 

The  minute-book  of  the  meetings  of  the  board  is  the  best 
evidence  to  prove  contracts  or  acts  of  agents  acting  upon  the 
authority  of  the  corporation. 

Where  the  appointment  of  an  agent  is  by  resolution  of 
the  directors,  or  in  any  other  manner  requiring  a  record  of 
the  matter,  the  entry  upon  the  minutes  or  books  of  the  cor- 
poration may  be  introduced  in  evidence  of  the  appointment. 

Buncombe  Turnp.  Co.  vs.  McCarson,  1  Dev.  &  B.  (N.  C.) 
306;  Owings  vs.  Speed,  5  Wheat.  420,  424;  Thayer  vs. 
Middlesex  Ins.  Co.,  27  Mass.  326;  Narragansett  Bank 


OFFICERS     AND    AGENTS  197 

vs.  Atlantic  Silk  Co.,  44  Mass.  282 ;  Clark  vs.  Farmers' 
Mfg.  Co.,  15  Wend.  256;  Methodist  Chapel  vs.  Hernick, 
25  Me.  354;  Haven  vs.  New  Hampshire  Asylum,  13  N. 
H.  532. 

Where  a  corporate  agent  is  appointed  by  a  resolution,  his 
authority  can  not  be  proved  by  parol.    The  extent'of  the  au- 
thority in  such  a  case  is  a  question  of  law  for  the  court. 
McCreery  vs.  Garvin,  39  S.  C.  375. 

In  order  to  make  the  corporate  books  admissible,  proof 
must  be  given  as  to  who  kept  them,  and  that  the  entries  were 
made  at  the  proper  time  or  by  the  proper  directors,  and  that 
the  entries  were  properly  made. 

Powell  vs.  Conover,  75  Hun.  11. 

A  contract  duly  accepted  and  agreed  to  in  a  directors' 
meeting  and  entered  on  the  minutes,  which  are  duly  signed,  is 
a  contract  in  writing. 

Texas,  etc.  Ry.  vs.  Gentry,  69  Tex.  625. 

An  entry  on  the  corporate  minutes  of  a  resolution  to  form 
a  corporation  contract  is  sufficient  on  notice  of  the  same  to 
the  other  party  and  suffices  to  form  the  contract.  It  satisfies 
the  statute  of  frauds. 

Argus  Co.  vs.  Mayor,  etc.,  55  N.  Y.  495. 

An  entry  on  the  directors'  minute-book,  duly  signed,  is 
sufficient  to  prevent  a  contract  being  void  by  'the  statute  of 
frauds. 

Jones  vs.  Victoria,  etc.  Co.,  L.  R.  2  Q.  B.  D.  314. 

Directors'  minutes  are  evidence  of  a  contract,  though  writ- 
ten up  after  the  meeting. 

Wells  vs.  Railway,  etc.  Co.,  19  N.  J.  Eq.  402. 

A  person  purchasing  a  mortgage  from  a  savings  bank 
through  its  treasurer  and  secretary  may  rely  upon  a  copy  of 
a  resolution  passed  by  the  trustees  authorizing  such  sale,  and 
duly  signed  by  the  secretary.  So  though  the  secretary  had 
intentionally  made  the  copy  different  from  the  original. 
Whiting  vs.  Wellington,  10  Fed.  Rep.  810. 


198  INDUSTRIAL     CORPORATIONS 

In  a  suit  by  an  employee  of  a  corporation  for  pay  for  serv- 
ices, the  defendants'  books,  properly  kept  by  its  proper  of- 
ficers, are  admissible  in  evidence  to  prove  payments  to  plain- 
tiff on  account  of  services. 

Ganther  vs.  Jenks,  etc.  Co.,  76  Mich.  510. 

A  resolution  of  the  board  of  directors  authorizing  an  as- 
signment for  the  benefit  of  creditors  is  sufficient. 

Tripp  vs.  Northwestern.  Nat.  Bank,  45  Minn.  383. 

The  minutes  of  directors'  meetings  as  they  appear  in  a 
corporate  book  will  not  be  excluded  as  evidence  merely  be- 
cause the  secretary  swears  that  they  were  written,  up  several 
years  after  the  meetings  and  were  made  partially  from  the 
recollections  of  the  president. 

Mcllhenny  vs.  Binz,  80  Tex.  1. 

Tn  proving  a  dc  facto  corporation,  the  meetings  and  the 
issue  of  stock  and  the  transaction  of  business  may  be  proved 
by  parol  without  producing  the  books. 

Johnson  vs.  Schulin,  73  N.  W.  Rep.  147  (Minn.). 

§  174.     Directors  Right  to   Examine  Books  of  Corporation. 

The  directors  or  a  single  director  have  the  right  to  ex- 
amine the  books  of  the  corporation  at  all  times.  This  right 
is  absolute. 

People  vs.  Throop,  12  Wend.  181  ;  Charlick  vs.  Flush- 
ing R.  R.,  10  Abb.  Pr.  130;  Re  Ciancimino,  N.  Y.  L.  J., 
Dec.  23 ;  Cf.  State  vs.  Einstein,  46  N.  J.  L.  479. 

This  is  true,  even  though  a  stockholder  is  hostile  to  the 
corporation. 

People  vs.  Throop,  12  Wend.  181. 

The  directors'  right  to  examine  books  of  the  corporation  is 
analogous  to  that  of  the  right  of  the  stockholders  to  examine 
the  books,  which  right  in  the  stockholders  is  an  absolute  right. 

"At  common  law  the  stockholders  of  a  corporation  had  the 
right  to  examine,  at  reasonable  times,  the  records  and  books 
of  the  corporation." 

Stone  vs.  Kellogg,  46  N.  E.  Rep.  222  (111.). 


OFFICERS     AND    AGENTS  199 

Stockholders  "have  the  right,  at  common  law,  to  examine 
and  inspect  all  the  books  and  records  of  the  corporation  at 
all  seasonable  times,  and  to  be  thereby  informed  of  the  condi- 
tion of  the  corporation  and  its  property." 

Per  Redfield,  J.  in  Lewis  vs.  Brainerd,  53  Vt.  519. 

In  Commonwealth  vs.  Phoenix  Iron  Co.,  105  Pa.  St.  Ill, 
the  court  said  : — 

"In  the  absence  of  agreement,  every  shareholder  has  the 
right  to  inspect  the  accounts, — a  right  subject  to  the  necessi- 
ties of  the  company,  yet  existing.  .  .  .  The  doctrine  of  the 
law  is  that  the  books  and  papers  of  the  corporation,  though 
of  necessity  kept  in  some  one  hand,  are  the  common  property 
of  all  the  stockholders." 

The  right  exists,  although  "its  exercise  be  inconvenient 
to  the  bookkeepers  and  managers  of  the  partnership  busi- 
ness." 

In  Huylar  vs.  Cragin  Cattle  Co.,  40  N.  J.  Eq.  392,  the 
court  said : — 

"Stockholders  are  entitled  to  inspect  the  books  of  the 
company  for  proper  purposes  at  proper  times,  .  .  .  and 
they  are  entitled  to  such  inspection,  though  their  only  object 
is  to  ascertain  whether  their  affairs  have  been  properly  con- 
ducted by  the  directors  or  managers.  Such  a  right  is  neces- 
sary to  their  protection." 

Deaderick  vs.  Wilson,  8  Baxt.  (Tenn.)  108. 

"The  minority  stockholder  should  have  the  right  to  re- 
quire a  statement  from  the  company." 
Sage  vs.  Culver,  71  Hun.  42. 

A  stockholder  is  not  entitled  as  a  matter  of  right  to  in- 
spect the  stock-book  or  other  books  of  the  bank.  The  court 
will  not,  although  it  has  the  power,  grant  a  mandamus  for 
the  inspection  of  the  stock-book  or  other  books  of  the  bank, 
unless  some  special  grounds  be  disclosed  to  warrant  it. 

Re  Bank  of  Upper  Canada  vs.  Baldwin,  1  Draper  (K. 

B.  Can.)  55. 

A  stockholder  in  a  New  York  corporation  has  a  common- 
law  right  to  examine  the  books  and  papers  of  the  corporation 
where  a  proposition  has  been  made  for  the  purchase  of  all 


200  INDUSTRIAL     CORPORATIONS 

the  stock  of  the  company  and  the  dividends  have  been  greatly 
reduced. 

Re  Application  of  Steinway,  31  N.  Y.  App.  Div.  70. 

Mr.  Simon  Stern,  in  the  Cyclopedia  of  Political  Science, 
Political  Economy,  and  United  States  History,  vol.  3,  p.  526, 
says : — 

"Another  problem  presented  by  the  existing  condition  of 
the  railways  in  the  United  States  is  that  which  arises  from 
the  secrecy  of  management.  This  evil  must  be  dealt  with 
radically.  One  of  the  prime  motives  for  secrecy  of  manage- 
ment is  the  enormous  advantage  which  at  the  present  day  it 
gives  to  the  managers  in  the  maintenance  of  their  power. 
They  alone  know  where  the  stockholders  are  to  be  found, 
and  can  therefore  control  votes  by  the  knowledge  of  how  to 
reach  or  buy  them,  thus  perpetuating  their  control.  Another 
motive  is  the  advantage  thus  afforded  for  stock  speculations. 
The  board  of  managers,  by  keeping  unto  themselves  the  know- 
ledge that  their  property  is  losing  heavily  in  comparative 
traffic,  can  sell  their  own  holdings  and  go  short  of  the  market 
under  circumstances  which  will  yield  them  an  absolute  cer- 
tainty of  profit  of  the  transaction.  This  gives  them  an  enor- 
mous advantage  over  the  community  by  depleting  the  pockets 
of  the  unwary,  who  find  themselves  saddled  with  stock  at 
high  prices,  bought  months  in  advance  of  the  public  announce- 
ment that  the  road  is  in  difficulties.  The  knowledge  of  rapid 
gains  in  the  development  of  business  likewise  gives,  so  long 
as  it  can  be  kept  secret,  a  like  advantage  in  purchase  of  stock. 
This  advantage  has  been  exploited  to  such  a  degree  in  the 
United  States  that  the  investing  public  has  become  inspired 
with  a  general  distrust  for  railroad  stock  investment." 

If  this  right  is  refused  in  either  case,  the  remedy  is  by 
writ  of  mandamus. 

"It  would  seem  from  the  weight  of  authority  arid  in  reason 
that  a  shareholder  is  entitled  to  mandamus  to  compel  the  cus- 
tos  of  corporate  documents  to  allow  him  an  inspection,  and 
copies  of  them,  at  reasonable  times,  for  a  specific  and  proper 
purpose,  upon  showing  a  refusal  on  the  part  of  the  custos  to 
allow  it,  and  not  otherwise." 

Commonwealth  vs.  Phoenix  Iron  Co.,  105  Pa.  St.  111. 

Phoenix  Iron  Co.  vs.  Commonwealth,  113  Pa.  St.  563,  ex- 
plaining the  method  of  procedure,  and  holding  that  the  ap- 


OFFICERS     AND    AGENTS  201 

plicant  need  not  apply  to  a  court  of  equity.  The  old  rule  that 
mandamus  will  issue  only  for  a  public  purpose  is  no  longer 
a  rule  of  law  so  as  to  prevent  its  use  herein. 

Commonwealth,  etc.,  supra,  questioning  Rex  vs.  Bank 
of  England,  2  B.  &  Aid.  620;  Rex.  vs.  England  Assur. 
Co.,  5  B.  &  Aid.  899;  Rex  vs.  Clear,  4  Barn.  &  C.  899; 
Foster  vs.  White,  86  Ala.  467. 

Where  it  is  provided  by  statute  that  a  stockholder  has  the 
right  to  examine  the  books  of  the  corporation,  mandamus  is 
granted  as  a  matter  of  right. 

Where  a  statute  gives  the  right  to  inspect,  this  right 
may  be  enforced  by  mandamus. 

Coquard  vs.  National,  etc.  Co.,  49  N.  E.  Rep.  563  (111.). 

A  statute  giving  the  right  to  examine  the  books  and  records 
gives  the  right  to  examine  contracts,  and  this  right  may  be 
enforced  by  mandamus. 

Stone  vs.  Kellogg,  46  Rep.  222  N.  E.  (111.). 

Mandamus  lies  at  the  instance  of  a  stockholder  to  compel 
his  corporation  to  allow  him  to  inspect  the  books  of  the  com- 
pany relative  to  the  stock  in  accordance  with  the  constitution 
of  Louisiana,  the  object  of  the  stockholder  being  to  ascertain 
the  value  of  the  stock  and  to  guide  his  future  action  in  re- 
gard thereto. 

State  vs.  New  Orleans,  etc.  Co.,  22  S.  Rep.  815  (La.). 

Under  the  Wisconsin  statute  authorizing  the  stockholder 
to  examine  the  stock-books  and  accounts,  a  mandamus  may 
be  issued  to  the  officer  having  the  books  in  charge. 
State  vs.  Bergenthal,  72  Wis.  314. 

Under  a  constitution  right  to  see  the  list  of  stockholders, 
a  stockholder  has  no  absolute  right  to  take  a  list  of  them. 

Commonwealth  vs.  Empire  Pass.  Ry.,  134  Pa.  St.  237. 

Mandamus  lies  to  enforce  the  statutory  right  of  inspection. 
People  vs.  Pacific  Mail  S.  S.  Co.,  50  Barb.  280. 

Mandamus  lies  to  compel  the  resident  agent  of  a  foreign 


202  INDUSTRIAL     CORPORATIONS 

corporation  to  open  its  transfer  books  to  a  stockholder  as  re- 
quired by  statute. 

People  vs.  Paton,  20  Abb.  N.  Cas.  195. 

Mandamus  will  lie  in  behalf  of  the  wife  of  a  deceased 
stockholder,  who  holds  the  certificates  made  out  in  his  name, 
to  compel  the  corporation  to  allow  her  to  examine  the  trans- 
fer books  in  order  that  she  may  vote  intelligently  at  a  coming 
election. 

People  vs.  Eadie,  63  Hun.  320. 

Mandamus   lies   to   open   for   inspection   of   a   stockholder 
and  for  taking  memoranda  therefrom  such  corporate  books  as 
the  statute  prescribes  shall  be  open  to  him. 
Re  Martin,  62  Hun.  557. 

Mandamus  lies  to  allow  inspection  as  required  by  the 
statute,  and  the  fact  that  the  applicant  holds  a  certificate  of 
stock  is  sufficient. 

Martin  vs.  Johnston  Co.,  25  Abb.  N.  Cas.  350. 

Where  there  is  a  State  statute  allowing  stockholders  to 
examine  the  corporate  books,  a  national  bank  in  the  State  is 
subject  thereto  and  mandamus  will  issue. 
Winter  vs.  Baldwin,  89  Ala.  483.- 

Under  a  statute  to  the  effect  that  "the  stockholders  of  all 
private  corporations  have  the  right  of  access  to,  inspection, 
and  examination  of  the  books,  records,  and  papers  of  the  cor- 
poration, at  reasonable  and  proper  times,"  a  stockholder  has 
the  "right  to  examine  the  books  at  any  and  all  reasonable 
times,"  and  "when  this  right  is  claimed  and  refused,  he  is 
entitled  to  a  mandamus  on  the  averment  that  he  is  a  stock- 
holder of  the  corporation  ;  that  he  has  demanded  the  right  of 
inspection  ;  that  the  time  was  reasonable  and  proper ;  and  that 
the  right  was  denied  him."  He  may  make  the  examination 
through  an  agent. 

Foster  vs.  White,  86  Ala.  467. 

Concerning  the  New  York  act  requiring  resident  transfer 
agents  of  foreign  corporations  to  exhibit  to  stockholders  the 


OFFICERS    AND    AGENTS  203 

transfer  book  and  a  list  of  stockholders,  and  concerning  an 
alternative  writ  of  mandamus  therein,  see — 

People  vs.  Crawford,  68  Hun.  547. 

Mandamus  lies  to  compel  corporate  officers  to  exhibit  to  a 
stockholder  the  books  specified  in  the  statute  giving  this  right. 

Ellsworth  vs.  Dorwart,  95  Iowa  108. 

A  corporation  may  make  any  sealed  obligation  without  a 
formal  vote  or  written  entry  of  vote  by  the  directors. 
Zihlman  vs.  Cumberland  Glass  Co.,  74  Md.  303. 

"The  entry  of  a  resolution  in  a  minute  is  not  essential  to 
the  validity  of  the  resolution,  which  is  proved  aliunde." 

Re  Great  Northern,  etc.  Works,  L.  R.  44  Ch.  D.  472; 
Bank  of  Yolo  vs.  Weaver,  31  Pac.  Rep.  160  (Cal.). 

"Parol  evidence  is  admissible  to  prove  the  action  of  the 
board  of  directors  or  stockholders  where  the  record  fails  to 
state  it." 

Allis  vs.  Jones,  45  Fed.  Rep.  148. 

"Where  a  corporation  consists  of  a  small  number  of  per- 
sons, like  a  partnership,  they  may  transact  all  their  business  by 
conversation,  without  formal  votes,  and  it  would  be  a  viola- 
tion of  the  plainest  principles  of  justice  to  hold  those  who  deal 
with  them  to  prove  all  their  acts  by  written  votes,  which 
they  da  not  keep  or  do  not  produce." 

Melledge  vs.  Boston,  etc.  Co.,  59  Mass.  158,  179;  Pickett 
vs.  Abney,  84  Tex.  65;  Sears  vs.  King's,  etc.  R.  R.,  152 
Mass.  151 ;  U.  S.  Bank  vs.  Danbridge,  12  Wheat,  64,  95 ; 
Union  Bank  vs.  Ridgely,  1  Har.  &  G.  (Md.)  324,  425 ;  St. 
Mary's  Church  vs.  Cagger,  6  Barb.  576;  Maxwell  vs. 
Dulwich  College,  1  Fonbl.  Eq.  296;  Magill  vs.  Kauf- 
man, 4  Serg.  &  R.  (Pa.)  317;  Brady  vs.  Brooklyn,  1 
Barb.  584 ;  Essex  Turnp.  Corp.  vs.  Collins,  8  Mass.  292, 
298;  Marshall  vs.  Queen sborough,  1  Sim.  &  S.  520; 
Elysville  Mfg.  Co.  vs.  Okisko.  Co.,  1  Md.  Ch.  392 ;  Gar- 
vey  vs.  Colcock,  1  Nott.  &  McC.  (S.  C.)  231 ;  Bates  vs. 
Bank  of  Alabama,  2  Ala.  452;  Scott  vs.  Middleton,  etc. 
R.  R.,  86  N.  Y.  200;  Tibbals  vs.  Mount  Olympus  Water 
Co.,  10  Wash.  329;  Outterson  vs.  Fonda  Lake  Paper 
Co.,  20  N.  Y.  Supp.  980. 

Where  there  are  but  a  few  persons  interested  in  a  cor- 
poration,— 


204  INDUSTRIAL  CORPORATIONS 

"ordinary  business  may  be  transacted  without  the  formality 
of  resolutions.  It  may  be  done  by  conversation  without  for- 
mal votes." 

Hall  vs.  Herter,  83  Hun.  19;  Columbia,  etc.  Co.  vs.  Van- 
couver, etc.  Co.,  52  Pac.  Rep.  513  Oreg. ;  United  Grow- 
ers Co.  vs.  Eisner,  22  N.  Y.  App.  Div.  1  ;  Rogers  vs. 
Pell,  154  N.  Y.  518;  Merrill  vs.  C.  T.  Segar  Mfg.  Co.,  32 
Hun.  543;  Contra,  Andover,  etc.  Turnp.  Co.  vs.  Hay, 
7  Mass.  102,  107;  Garvey  vs.  Colcock,  1  Nott  &  McC.  (S. 
C.)  231;  Peek  vs.  Detroit,  etc.  Works,  29  Mich.  313; 
but  see  Taymouth  vs.  Koehler,  35  Mich.  22;  Nashua, 
etc.  R.  R.  vs.  Boston,  etc.  R.  R.  27  Fed.  Rep.  821 ;  Moss 
vs.  Averell,  10  N.  Y.  449;  Baptist  House  vs.  Webb,  66 
Me.  398;  Wallace  vs.  First  Parish,  etc.,  109  Mass.  263; 
Prothro  vs.  Minden  Sem.,  2  La.  Ann.  939;  Preston  vs. 
Missouri,  etc.  Co.,  51  Mo.  43;  Edgerly  vs.  Emerson,  23 
N.  H.  555;  Delano  vs.  Smith  Charities,' 138  Mass.  63; 
Holden  vs.  Hoyt,  134  Mass.  181 ;  Wood  vs.  Wiley,  etc. 
Co.,  56  Conn.  87;  Perkins  vs.  Washington  Ins.  Co.,  4 
Cow.  645 ;  Hoag  vs.  Lament,  60  N.  Y.  96 ;  Fleckner  vs. 
Bank  of  U.  S.,  8  Wheat.  338;  Elysville  Mfg.  Co.  vs. 
Okisko  Co.,  1  Md.  Ch.  392. 

The  resolution  and  votes  of  directors  are  the  best  evi- 
dence, and  should  be  produced  or  their  absence  accounted  for, 
but  if  no  record  is  made  or  it  is  lost  or  destroyed,  secondary 
evidence  is  admissible  to  prove  what  was  done  after  it  is 
ascertained  that  the  originals  a.re  not  to  be  found  by  an  ex- 
amination of  the  officers  of  the  corporation. 

Mullanphy  Sav.  Bank  vs.  Schott,  135  111.  635. 
Where  the  non-production  of  the  books  is  accounted  for, 
the  entries  may  be  proved  by  the  clerk,  otherwise  they  should 
be  proved  by  the  entries  in  the  books  themselves. 

Brower  vs.  East,  etc.  Co.,  84  Ga.  219. 

The  books  are  the  best  evidence  and  no  testimony  other- 
wise as  to  what  has  been  seen  upon  the  books  is  competent. 

Dial  vs.  Valley,  etc.  Assoc.,  29  S.  C.  560. 
Even  a  copy  of  a  resolution  of  a  foreign  corporation  is  not 
evidence   until   it  is  shown   that  at  least   a  reasonable   effort 
has  been  made  to  obtain  the  books  of  the  corporation. 
Bowick  vs.  Miller.  21  Ore.  25. 


OFFICERS     AND    AGENTS  205 

Sworn  copies  are  not  even  admissible  unless  loss  of  the 
books  is  accounted  for. 

Latourette  vs.  Clark,  51  N.  Y.  639;  Hallowell,  etc.  Bank 
vs.  Hamlin,  14  Mass.  178;  First  Nat.  Bank  vs.  Tisdale, 
84  N.  Y.  655 ;  Owings  vs.  Speed,  5  Wheat.  420;  Zalesky 
vs.  Iowa,  etc.  Co.,  70  N.  W.  Rep.  187  (Iowa)  ;  Mandel 
vs.  Swan,  etc.  Co.,'  154  111.  177;  Low'ry  Banking  Co.  vs. 
Empire  Lumber  Co.,  91  Ga.  624;  Boggs  vs.  Lakeport, 
etc.  Assoc.,  III.  Cal.  354;  New  Boston,  etc.  Co.  vs. 
Saunders,  34  Atl.  Rep.  670  N.  H. ;  Cameron  vs.  First, 
etc.  Bank,  34  S.  W.  Rep.  178  (Tex.)  ;  Langsdale  vs. 
Bonton,  12  Ind.  467;  Bay,  etc.  Assoc.  vs.  Williams.  50 
Cal.  353;  Cornwall,  etc.  Co.  vs.  Bennett,  5  H.  &  N.  423; 
Thayer  vs.  Middlesex,  etc.  Co.,  27  Mass.  325 ;  Elems  vs. 
Ogle,  15  Jur.  180;  Lohman  vs.  New  York,  etc.  R.  R.,  2 
Sandf.  39;  Narragansett  Bank  vs.  Atlantic  SUk  Co.,  44 
Mass.  282;  Barigor,  etc.  R.  R.  vs.  Smith,  47  Me.  34; 
Haven  vs.  New  Hampshire  Asylum,  13  N.  H.  532; 
Clark  vs.  Farmer's,  etc.  Co.,  15  Wend.  256;  Mont- 
gomery R.  R.  vs.  Hurst,  9  Ala.  513;  Gould  vs.  Norfolk, 
etc.  Co.,  63  Mass.  338;  Waters  vs.  Gilbert,  56  Mass.  27; 
Van  Hook  vs.  Somerville,  etc.  Co.,  5  N.  J.  Eq.  137,  169; 
Boston,  etc.  Co.  vs.  Barton,  59  Mass.  158,  179;  Smith 
vs.  Natchez,  etc.  Co.,  2  Miss.  479,  492;  Highland  Tump. 
Co.  vs.  McKean,  10  Johns.  154;  Whitman  vs.  Granite 
Church,  24  Me.  236 ;  Stebbins  vs.  Merritt,  64  Mass.  27 ; 
Union  Bank  vs.  Knapp,  20  Mass.  96;  Chenango,  etc. 
Co.  vs.  Lewis,  63  Barb.  111. ;  Union,  etc.  Co.  vs.  Rocky 
Mountain  Nat.  Bank,  2  Co-lo.  565  ;  Gafford  vs.  American, 
etc.  Co.,  77  Iowa  736;  Bl^om  vs.  Pond's  Extract  Co.,  18 
N.  Y.  Supp.  179. 

A  resolution  may  be  proved  by  parol  though  only  the 
company's  memorandum  was  made  of  it. 

Handley  vs.  Stutz,  139  U.  S.  417;  Wiley  vs.  Athol,  150 
Mass.  426. 

§  175.     Executive   Committee. 

The  power  of  directors  to  delegate  authority  to  subordi- 
nate officers  to  transact  business  is  no  longer  open  question. 
The  power  is  limited  to  the  radius  of  the  charter  and  to 
whether  or  not  the  decision  would  involve  the  exercise  of  dis- 
cretion. 


206  INDUSTRIAL     CORPORATIONS 

Directors  may  authorize  two  of  their  number  to  execute 
corporate  notes  to  a  person. 

Leavitt  vs.  Oxford,  etc.  Co.,  3  Utah  265. 

Or  appoint  an  agent  to  execute  a  deed. 
Arms  vs.  Conant,  36  Vt.  744. 

Where  various  corporations  appoint  a  committee  to  carry 
on  litigation,  they  are  each  liable  for  the  attorney's  fees,  the 
attorneys  having  no  knowledge  of  a  limitation  of  the  powers 
of  the  committee  in  the  matter. 

Prindle  vs.  Washington  L.  Ins.  Co.,  73  Hun.  448. 

Directors  having  power  to  fix  the  rates  of  their  railroad 
may  delegate  that  power  to-  agents. 

Manchester,  etc.  R.  R.  vs.  Fisk,  33  N.  H.  297. 

The  corporation  may  authorize  its  president  to  sell  and  as- 
sign its  negotiable  paper. 

Stevens  vs.  Hill,  29  Me.  133;  Northampton  Bank  vs. 
Pepoon,  11  Mass.  288. 

Nearly  all  corporate  acts  are  done  by  means  of  subordinate 
agents.     Such  delegations  of  authority  are  necessary. 
Manchester  Ry.  vs.  Fisk,  33  N.  H.  297. 

Difficulty    occurs-  in    defining    the    line    which    separates 
powers  that  may  be  delegated  from  those  which  may  not  be. 
See  Lyon  vs.  Jerome,  26  Wend.  485 ;  Gillis  vs.  Bailey, 
21  N.  H.  149. 

A  corporation  owning  the  water-works  outside  of  a  city 
may  agree  to  furnish  water  to  one  inside  the  city,  the  general 
distribution  of  the  water  to  be  under  the  joint  control  of  two 
agents,  each  corporation  appointing  one,  and  the  profits  to  be 
divided  equally. 

San  Diego  Water  Co.  vs.  San  Diego  Flume  Co.,  108 
Cal.  549. 

The  directors'  duty  to  pass  on  paper  offered  for  discount 
can  not  be  delegated  in  Louisana. 

Percy  vs.  Millaudon,  3  La.  568;  Cf.  Morse,  Banks  and 
Banking,  108. 


OFFICERS    AND    AGENTS  207 

Directors  having  power  to  purchase  stock  can  not  delegate 
that  power  to  a  general  manager.    No  ratification  arises  from 
the  fact  that  the  purchase  was  entered  on  the  books. 
Cartmell's  Case,  L.  R.  9  Ch.  691. 

Directors  can  not  delegate  to  two  of  their  number  the 
question  of  whether  a  conditional  subscription  to  shares 
should  be  accepted. 

Howard's  Case,  L.  R.  1  Ch.  561. 

Two  directors  acting  as  agents  to  receive  calls  have  no 
power  to  waive  a  forfeiture  of  stock  and  receive  the  calls 
thereon. 

Card  vs.  Carr,  1  C.  B.  (N.  S.)  197. 

Directors  can  not  delegate  to  a  committee  the  power  to 
forfeit  and  sell  stock  for  non-payment  of  calls. 
York,  etc.  R.  R.  vs.  Ritchie,  40  Me.  425. 

A  Pennsylvania  railroad  corporation  can  not  authorize  its 
board  of  directors  to  delegate  to  an  executive  committee  the 
location  of  the  route. 

Weidenfeld  vs.  Sugar,  etc.  R.  R.,  48  Fed.  Rep.  615. 
In  Gillis  vs.  Bailey,  21  N.  H.  149,  it  was  held  that  a  board 
of  directors  could  not  delegate  to  an  agent  the  power  to  lease 
various  pieces  of  property  owned  by  the  corporation.     Power 
to  make  assessment  can  not  be  delegated  by  the  directors. 
Farmers',  etc.  Ins.  Co.  vs.  Chase,  56  N.  H.  341. 

Silver  Hook  Road  vs.  Greene,  12  R.  I.  164,  where  the  dele- 
gation was  to  the  treasurer. 

But  see  Read  vs.  Memphis,  etc.  Co.,  9  Heisk.  (Tenn.)  545, 
where  such  delegation  to  the  president  was  upheld. 

In  Tempel  vs.  Dodge,  89  Tex.  68,  it  was  held  that  a  cor- 
poration had  no  right  to  create  by  its  by-laws  an  executive 
committee  to  exercise  the  power  of  the  board  of  directors. 

An  executive  committee  is  a  necessary  part  of  the  ma- 
chinery of  large  corporations.  It  relieves  the  board  of  di- 
rectors or  many  minor  things  that  had  as  well  be  done  by  a 
subordinate  officer  or  officers.  It  is  a  clear  weight  of  au- 


208  JNDUSTRIAL     CORPORATIONS 

thority  that  the  executive  committee  may  bind  the  corporation 
as  effectually  as  the  board  of  directors. 

An  executive  committee  may  be  appointed  under  the  statu- 
tory power  of  the  company  "to  appoint  such  subordinate  of- 
ficers and  agents  as  the  business  of  the  corporation  may  re- 
quire." The  executive  committee  may  delegate  to  one  of 
their  number  the  indorsing  of  checks,  etc. 

Sheridan,  etc.  Light  Co.  vs.  Chatham  Nat.  Bank,  127 
N.  Y.  517. 

A  contract  between  two  railroads,  by  which  one  was  given 
the  right  to  run  over  the  tracks  of  the  other,  is  legal,  although 
it  is  executed  by  the  authority  only  of  the  executive  commit- 
tee and  of  a  meeting  of  the  stockholders,  the  court  saying  the 
determination  of  the  management  of  the  corporate  affairs  rests 
with  its  stockholders,  and  that  the  stockholders  had  the  power 
to  authorize  the  board  of  directors  to  delegate  the  power  to 
the  executive  committee  to  do  any  and  all  acts  which  the 
board  itself  was  authorized  to  do. 

Union,  etc.  Ry.  vs.  Chicago,  etc.  Ry.,  163  U.  S.  564,  597. 

Where  by-laws  give  to  the  directors  the  "whole  charge 
and  management  of  the  property,"  and  the  directors  are  also 
authorized  to  have  an  executive  committee  to  do  any  busi- 
ness which  the  board  itself  might  do,  and  the  board  authorizes 
the  executive  committee  to  exercise  all  the  powers  of  the 
board  when  the  board  is  not  in  session,  a  contract  of  the 
executive  committee,  ratified  at  a  meeting  of  the  stockholders, 
to  allow  another  railroad  to  have  the  joint  use  of  the  com- 
pany's bridge  and  terminals,  is  legal  and  binding. 

Union  Pac.  Ry  vs.  Chicago,  etc.  Ry.,  51  Fed.  Rep.  309: 
Chicago,  etc.  Ry.  vs.  Union  Pac.  Ry.,  47  Fed.  Rep.  15. 

See  also  Black  River  Imp.  Co.  vs.  Holway,  85  W.is.  344,  and 
Hoyt  vs.  Thompson's  Executor,  19  N.  Y.  207,  where  the  com- 
mittee consisted  of  any  five  or  more  directors  who  attended 
meetings  of  which  notice  was  given  to  all. 
See  Hoyt  vs.  Shelden,  3  Bosw.  267. 

The  right  of  a  board  of  directors  to  delegate  its  powers  to 


OFFICERS     AND    AGENTS  209 

an  executive  committee  was  raised  but  not  fully  passed  upon 
in  Metropolitan,  etc.  Co.  vs.  Domestic,  etc.  Co.,  43  N.  J.  Eq. 
626,  where  it  was  remarked  that  the  rigidity  of  the  old  rule 
prohibiting  such  delegation  has  been  somewhat  relaxed. 

"The  managers  might,  undoubtedly,  clothe  a  committee, 
in  the  intervals  between  the  sitting  of  the  board,  with  all 
their  own  authority  to  conduct  the  ordinary  business  of  the 
company." 

But  it  seems  that  this  executive  committee  can  not  dele- 
gate its  power  to  one  of  their  number. 

Olcott  vs.  Tioga  R.  R.,  27  N.  Y.  546,  558. 

The  by-laws  may  authorize  the  directors  to  delegate  their 
powers  to  a  committee.  Harris'  Case,  L.  R.  7  Ch.  587,  where 
the  committee  allotted  shares.  Directors  may  delegate  to  a 
committee  power  to  sell  corporate  property,  and  a  mortgage 
given  by  the  committee  is  valid.  Certainly  so  where  the 
board  of  directors  subsequently  accepted  the  papers  connected 
with  it. 

Burrill  vs.  Nahant  Bank,  43  Mass.   163. 

In  Andreas  vs.  Fry,  45  Pac.  Rep.  534  (Cal),  the  contract 
of  the  executive  committee  authorized  to  purchase  patent- 
rights  was  declared  legal.  The  constitution  of  an  incorporated 
camp-meeting  association  may  authorize  an  executive  com- 
mittee and  give  it  power  to  make  regulations  as  to  the  use 
of  the  grounds. 

Round  Lake  Assoc.  vs.  Kellogg,  141  N.  Y.  348. 

Where  the  by-laws  authorize  the  directors  to  transact 
business  through  a  committee,  that  committee  may  consist 
of  one  person. 

De  Tourine  Co.,  L.  R.  25  Ch.  D.  118. 

An  employee  of  a  company  who  sues  for  services,  under  a 
written1  contract  made  with  the  "Chairman"  and  "Managing 
Director,"  may  collect;  their  authority  is  presumed  as  agents 
or  executive  committee. 

Totterdell  vs.  Fareham  Brick  Co.,  L.  R.  1  C.  P.  674. 
15     - 


210  INDUSTRIAL     CORPORATIONS 

In  New  York  it  is  clearly  held  that  the  directors  of  a 
banking  or  loan  and  trust  company  may  appoint  an  executive 
committee  and  authorize  it  to  act  for  the  board  of  directors, 
and  that  the  acts  of  this  committee  are  as  binding-,  valid,  and 
effective  as  though  the"  had  been  authorized  by  the  board  of 
directors  directly. 

Palmer  vs.  Yates,  3  Sandf.  137;  Cf.   Bank  Com'rs  vs. 

Bank  of  Buffalo,  6  Paige  497. 

In  Bank  of  Columbia  vs.  Paterson's  Admr.,  7  Cranch  299, 
the  right  of  the  directors  to  delegate  their  power  to  contract 
to  a  committee  was  not  questioned.  Stockholders  can  not 
elect  a  committee  and  compel  the  directors  to  act  with  that 
committee  in  corporate  matters. 

Boot,  etc.  Co.  vs.  Dunsmore,  60  N.  H.  85. 

It  is  fraudulent  for  an  executive  committee  to  vote  large 
compensation  to  themselves  for  services  as  promoters-. 
Blatchford  vs.  Ross,  54  Barb.  42. 

In  St.  Louis,  etc.  Assoc.  vs.  Augustin,  2  Mo.  App.  123,  a 
loan  committee  contracted  for  the  corporation.  Where  the 
executive  commi.ttee  can  act  only  when  the  president  is  pres- 
ent, action  without  his  presence  is  void. 

Corn,  etc.  Bank  vs.  Cumberland,  etc.  Co.,  1  Bosw.  436. 

As  to  committees  of  municipal  corporations,  see  Dillon, 
Mun.  Corp.,  60,  374.  Contracts,  etc.,  by  an  executive  com- 
mittee have  often  been  recognized  as  valid. 

See  Tracy  vs.  Guthrie,  etc.  Soc.,  47  Iowa  27. 

A  stockholder's  request  to  such  a  committee  to  bring  an 
action  to  remedy  a  corporate  wrong  is  sufficient. 
Hazard  vs.  Durant,  11  R.  I.  196. 

The  committee's  consent  to  an  arbitration  may  be  ratified 
by  the  company. 

Freyburg  Canal  vs.  Frye,  5  Me.  38. 

Although  a  contract  is  irregularly  made  by  the  executive 
committee  of  a  corporation,  there  being  no  notice  and  no 


OFFICERS    AND    AGENTS  211 

quorum,  yet,  by  accepting  the  benefits  of  the  contract  after- 
ward, the  company  is  bound. 

Metropolitan,  etc.  Co.  vs.  Domestic,  etc.  Co.,  43  N.  J. 

Eq.  626. 

In  Curtiss  vs.  Leavitt,  15  N.  Y.  1,  a  finance  committee  had 
authorized  the  issue  of  bonds.  The  charter  required  a  reso- 
lution of  the  board  of  directors.  The  court  held  that  ac- 
quiescence cured  the  defect.  In  Taylor  vs.  Agriculture  Assoc., 
68  Ala.  229,  the  executive  committee  was  provided  for  by  the 
charter.  A  committee  authorized  to  settle  with  a  person 
can  not  also  settle  with  a  firm  in  which  he  is  interested,  but 
the  company  may  ratify. 

Merchant's,  etc.  Co.  vs.  Rice,  70  Iowa  14. 
The  acts  of  the  executive  committee  may  be  construed  to 
be  subject  to  the  approval  of  the  next  meeting  of  the  board 
of  directors. 

Indianapolis,  etc.  R.  R.  vs.  Hyde,  122  Ind.  188. 
An  executive  committee  having  the  general  direction  and 
superintendence  of  the  affairs  of  the  company  have  no  power 
to  issue  stock,  the  whole  capital  stock  being  already  issued. 

Ryder  vs.  Bushwick  R.  R.,  134  N.  Y.  83. 
A  person  sued  on  a  tort  can  not  raise  the  objection  that 
the  proceedings  of  an   executive  committee  or  board  of  di- 
rectors were  irregular,  or  that  stockholders  did  not  consent 
to  a  contract. 

Farnsworth  vs.  Western,  etc.  Co.,  6  N.  Y.  Supp.  735; 

Black  River  Imp.  Co.  vs.  Holway,  85  Wis.  344. 

A  minority  have  a  right  to  be  heard,  and  the  majority  can 
not  delegate  the  power  to  the  committee,  and  thereby  over- 
ride the  right  of  the  minority  voice  in  the  affairs  of  the  cor- 
poration. As  has  been  said, — 

"Even  if  the  minority  had  a  voice  given  to  them,  still  if 
there  existed*  a  combination  among  the  majority  before  that 
voice  was  heard  to  overbear  it,"  the  acts  of  such  a  body  would 
be  illegal. 

Great  Western  Ry.  vs.  Rushout,  5  De  G.  &  S.  N.,  290, 

310. 


212  INDUSTRIAL     CORPORATIONS 

Where  the  power  to  transact  business  is  delegated  to  the 
committee,  it  is  the  rule  that  the  majority  of  the  committee 
will  bind  the  committee  or  board  of  directors  as  well  as  the 
corporation,  due  notice  having  been  given,  however,  of  the 
time,  place,  and  purpose  of  the  meeting  of  the  committee. 

Burleigh  vs.  Ford.  61  N.  H.  360 ;  Metropolitan,  etc:  Co. 

vs.  Domestic,  etc.  Co.,  43  N.  J.  Eq.  626;  State  vs.  Jersey 

City,  27  N.  J.  L.  493 ;  Junkins  vs.  Doughty  Falls,  etc. 

Dist.,  39  Me.  220;  McNeil  vs.  Boston  Chamber  of  Com., 

154  Mass.  277;  Re  Liverpool,  etc.  Assoc.,  62  L.  T.  Rep. 

873;    Brown    vs.    Andrews,    13    Jur.    938;    Tracy    vs. 

Guthrie,  etc.  Soc.,  47  Iowa  27;  Trott  vs.  Warren,  11  Me. 

227;  Maitland's  Case,  4  De  G.,  M.  &  G.  769;  Cook  vs. 

Ward,  L.  R.  2  C.  P.  D.  225 ;  Lyon  vs.  Jerome,  26  Wend. 

485 ;  Cooper  vs.  Lampeter,  8  Watts  (Pa.)  125. 

§  176.     Subordinate  Officers. 

The  officers  already  elected  by  the  stockholders  are  the 
board  of  directors,  and  possibly  the  president,  are  not  the  sub- 
ordinate officers  and  agents  of  the  corporation  that  are  elected 
or  chosen  by  the  board  of  directors,  for  the  purpose  of  attend- 
ing and  carrying  out  the  detail  business  of  the  company. 

The  following  list  will  serve  to  show  the  agents  usually 
elected  or  chosen  by  the  board : — 

1.  Executive   Committee. 

2.  President. 

3.  Vice-President. 

4.  Secretary. 

5.  Treasurer. 

6.  Counsel. 

7.  General  Manager. 

8.  Advisory  Board. 
§  177.     President. 

Every  corporation  has  a  president.  The  president  usually 
has  charge  of  the  meetings.  He  is  usually  a  stockholder  and  is 
generally  one  of  the  board  of  directors.  His  powers  and  duties 
are  very  important,  as  he  is  possibly  the  proper  executive 
officer  of  the  corporation  unless  he  is  otherwise  directed  by 
the  by-laws. 


OFFICERS     AND    AGENTS  213 

He  can  perform  the  routine  business  of  the  corporation 
without  authority  from  the  board  of  directors,  but  to  do  ex- 
traordinary business  the  president  should  be  empowered  by 
resolution  of  the  board  of  directors. 

§  178.     President's  Order  of  Business. 

The  secretary  should  prepare  a  general  order  of  business 
for  the  president  or  presiding  officer,  and  may  be  for  a  routine 
work  as  follows : — 

1.  Roll  call. 

2.  Proof  of  due  notice  of  meeting. 

3.  Disposal  of  unapproved  minutes. 

4.  Reading  and  approval  of  minutes  of  former  meeting. 

5.  Unfinished  business. 

6.  New  business. 

7.  Adjournment. 

§  179.     Secretary. 

The  secretary  is  an  important  officer  of  the  company. 
He  has  to  do  with  the  records  of  the  company ;  he  keeps  the 
books  of  the  company ;  he  gives  notice  of  the  meetings.  He 
takes  the  minutes  of  any  meeting,  and  should  be  a  man  care- 
fully qualified  to  keep  records,  and  so  preserve  the  records 
as  to  be  at  all  times  accessible  and  handy  to  any  of  the  stock- 
holders or  board  of  directors. 

§  180.     Treasurer. 

The  treasurer's  office  is  a  very  responsible  office  for  the 
reason  that  he  keeps  the  records  of  the  financial  affairs  of  the 
company,  and  in  smaller  corporations  he  would  be  the  book- 
keeper; however,  if  the  company  had  enough  business,  he 
would  be  at  the  head  of  the  clerical  force  that  attended  to  the 
books.  The  treasurer  has  no  power  to  bind  the  company 
to  a  contract  unless  specially  authorized  by  the  board  of  di- 
rectors or  by  custom  or  practice,  and  if  he  has  charge  of  large 
amounts  of  money,  he  should  be  required  to  give  bond  for 
the  faithful  performance  of  his  duty  and  the  safe  keeping  of 
the  funds  of  the  company,  otherwise  the  company  might  find 


214  INDUSTRIAL     CORPORATIONS 

its  funds  dissipated  without  any  adequate  or  possible  means 
of  recovery. 

§  181.     Counsel. 

The  employment  and  duties  of  the  counsel  of  the  company, 
which  is  usually  a  qualified  attorney-at-law,  are  within  the 
scope  of  the  board  of  directors.  He  carries  on  what  litiga- 
tion they  authorize  him  to  undertake,  and  carries  out  what- 
ever they  empower  him  to  do.  His  most  useful  duty  is  to 
advise  the  other  officers  of  the  company  so  as  to  avoid  litiga- 
tion and  complications  that  otherwise  they  might  be  led  into. 
He  is  paid  usually  by  an  annual  fee  or  salary,  or  he  may  be 
paid  by  retainer  for  each  case,  and  they  have  whatever  serv- 
ices thereafter  he  performs  in  the  various  litigation  he  may 
be  called  upon  to  attend  to,  and  otherwise  than  that,  a  con- 
sultation fee  will  be  provided  for  him. 

§  182.     General  Manager. 

The  general  manager  of  the  company  or  its  general  man- 
aging agent  may,  in  ordinary  corporations,  be  the  president 
or  any  other  officer  of  the  company.  In  larger  corporations, 
his  functions  are  distinct  from  any  other  officer.  He  is  in 
no  sense  a  responsible  officer  like  the  president,  secretary,  or 
treasurer.  He  has  no  concern  of  the  corporate  affairs  or 
finances.  He  simply  attends  to  its  ordinary  business  just  the 
same  as  if  he  were  working  for  a  partnership  or  for  any 
ordinary  business  or  for  himself.  His  line  of  work  and  the 
scope  of  the  business  entrusted  to  him  will  be  limited  to  the 
transaction  of  the  particular  business  in  which  the  company 
is  engaged  and  carrying  out  a  routine  business,  and  as  such 
he  can  make  any  contract  in  the  routine  business..  He  would 
report  to  his  superior  officer,  possibly  the  president,  and  un- 
less required  to  do  so,  he  would  not  report  to  any  other  of- 
ficial ;  the  board  of  directors,  however,  may  call  upon  him  to 
report.  He  should  be  skilled  in  the  particular  business  of 
the  corporation  and  be  able  and  efficient,  because  to  his  skill 
largely,  or  to  a  great  extent,  would  depend  the  success  of  the 
routine  business  of  the  company. 


oi-KICKKS     AMI     AGENTS  215 

§  183.     Advisory  Board. 

The  advisory  board  would  never  be  necessary  unless  the 
company  should  be  a  large  corporation  and  have  a  very  ex- 
tended business,  and  in  that  case,  an  advisory  board  would 
possibly  be  useful,  for  their  duty  would  be  to  advise  the  board 
of  directors  in  matters  of  grave  importance  concerning  the 
interests  of  the  company  and  advise  the  board  of  directors 
of  plans  and  particulars  as  to  how  the  difficult  features  of  the 
company's  transactions  should  be  carried  out.  They  are 
chosen  from  the  stockholders,  if  selected  at  all.  Small  cor- 
porations do  not  need  them. 

It  will  be  within  the  scope  of  this  work  to  devote  a  chapter 
to  each  one  of  the  above  officers  and  follow  in  detail  their 
various  duties,  powers,  and  the  extent  of  the  liabilities  to 
which  they  may  subject  the  company,  and  hence  the  mat- 
ters above  mentioned  are  mere  suggestions  to  enable  the  in- 
corporators  to  give  the  different  subjects  such  consideration 
as  they  see  proper. 

The  minutes  of  the  secretary  can  cover  each  topic  here  re- 
ferred to,  in  concise  language  stating  simply  what  was  done. 
This  will  make  all  the  record  necessary  for  future  use. 

§  184.     President. 

The  president  of  a  corporation  has  very  little  more  power 
than  any  other  officer  of  the  corporation.  He  has  no  power 
to  buy,  sell,  or  confact  for  the  corporation,  nor  to  control 
its  property,  its  funds,  or  its  management.  He  may  be  au- 
thorized to  contract  by  a  board  of  directors,  or  it  may  be 
customary  for  him  to  contract,  or  his  contracts  may  be  rati- 
fied when  they  have  been  made,  but  he  can  not  act  in  any 
greater  capacity  by  authority  of  his  being  the  president  than 
any  other  director. 

"In  the  absence  of  anything  in  the  act  of  incorporation  be- 
stowing special  power  upon  the  president,  he  has  from  his 


216  INDUSTRIAL     CORPORATIONS 

mere  official  station  no  more  control  over  the  corporate  prop- 
erty and  funds  than  any  other  director." 

Titus  vs.  Cairo,  etc.  R.  R.,  37  N.  J.  L.  98. 

The  president  has  no  authority  to  direct  the  treasurer  to 
refuse  to  receive  payments  of  subscriptions. 
Potts  vs.  Wallace,  146  U.  S.  689. 

The  president   has  no  power  to  employ  an  architect  to 
prepare  plans,  and  the  company  is  not  liable  therefor. 

Wait  vs.  Nashua,  etc.  Assoc.,  23  Atl.  Rep.  77  N.  H. 

A  president  has  no  inherent  power  to  execute  a  mortgage. 
Alta  Silver  Min.  Co.  vs.  Alta  Placer  Min.  Co.,  78  Cal. 
629. 

The  president  has  no  implied  power  to  mortgage  the  cor- 
porate property. 

National  State  Bank  vs.  Vigo,  etc.  Bank,  141  Ind.  352. 

The  president  has  no  power  to  mortgage,  even  though  he 
has  been  given  power  to  pledge  notes  and  contracts. 
Currie  vs.  Bowman,  25  Oreg.  364. 

The  president  has  no  inherent  authority. 

Brush,  etc.  Co.  vs.  City,  etc.  Montgomery,  21  S.  Rep. 
960  Ala. 

The  president  has  no  authority  to   increase  the   price  of 
construction  work. 

Grant  vs.  Duluth,  etc.  Ry.,  69  N.  W.  Rep.  23  (Minn.). 

The  president  and  secretary  have  no  inherent  power  to  ex- 
ecute notes  in  the  name  of  the  corporation. 

Estes  vs.  German  Nat.  Bank,  62  Ark.  7. 

The  president  has  no  power  to  assign  a  patent-right  be- 
longing to  the  company  to  pay  a  corporate  debt,  where  there 
is  no  meeting  of  the  board  of  directors  to  authorize  the  same. 
Kansas,  etc.  Co.  vs.  Devol,  72  Fed.  Rep.  717. 

The  president  has  no  power  to  confess  judgment  for  the 
corporation. 

Raub  vs.  Blairstown  Creamery  Assoc.,  56  N.  J.  L.  262. 


OFFICERS    AND    AGENTS  217 

A  president  and  secretary  have  no  implied  power  to  give 
a  corporate  note. 

Edwards  vs.  Carson  Water  Co.,  21  Nev.  469. 
The  president  can  not  bind  the  corporation  by  his  agree- 
ment that  it  will  pay  the  debts  of  a  person. 

Hamilton  vs.  Bates,  35  Pac.  Rep.  304  (Cal.). 

The  president  has  no  power  to  sell  treasury  stock. 

Re  Utica,  etc.  Co.,  154  N.  Y.  268. 

Tn  Powers  vs.  Schlicht,  etc.  Co.,  23  N.  Y.  App.  Div.  380, 
the  court  stated  that  the  president  of  a  business  corporation 
has  implied  power  to  make  contracts  in  its  behalf.  The  presi- 
dent of  a  railroad  company  has  no  inherent  authority  to  ne- 
gotiate a  loan  of  $150,000,  and  agree  to  pay  ten  per  cent, 
thereof  as  brokerage. 

Tobin  vs.  Roaring,  etc.  R.  R.,  86  Fed.  Rep.  1020. 
The  fact  that  a  person  buying  land  is  president  of  a  com- 
pany and  gives  a  draft  on  the  company  in  part  payment  does 
not  make  it  a  purchase  by  the  company  for  which  it  is  liable. 

Re  Seymour,  83  Mich.  496. 

The  president  of  a  literary  and  Biblical  institution  has  no 
power  to  buy  lumber  for  it,  and  it  is  not  liable  therefor,  al- 
though it  has  used  it,  where  some  of  the  directors  had  agreed 
among  themselves  to  pay  for  the  lumber. 

Lyndon  Mill  Co.  vs.  Lyndon,  etc.  inst,  22  Atl.  Re]). 
575  (Vt.). 

A  president  of  a  bank  can  not  agree  that  sureties  on  paper 
given  to  the  bank  will  not  be  held  liable. 

First  Nat.  Bank  vs.  Bennett,  33  Mich.  520. 

"It  is  not  within  the  authority  of  a  president  of  a  bank, 
when  he  discounts  paper  for  the  bank,  to  promise  the  maker 
that  he  need  not  pay  it." 

First  Nat.  Bank  vs.  Tisdale,  18  Hun.  151 ;  aff'd,  84  N.  Y. 

655. 

The  president  can  not  borrow  money  for  the  company  un- 
less the  charter  or  the  board  of  directors  authorizes  him. 

Life  &  F.  Ins.  Co.  vs.  Mechancs'  F.  Ins.  Co.,  7  Wend.  31. 


218  INDUSTRIAL     CORPORATIONS 

The  president  has  some  power,  however.  He  may  employ 
counsel  for  the  company  and  prosecute  or  defend  actions  in 
court. 

American  Ins.  Co.  vs.  Oakley,  9  Paige  496;  Mumford 
vs.  Hawkins,  5  Denio  355;  Potter  vs.  New  York  Inf. 
Asylum,  44  Hun.  367. 

He  may  also  employ  special  counsel. 

Davis  vs.  Memphis,  etc.  Ry.,  22  Fed.  Rep.  883  ;  Recamier 
Mfg.  Co.  vs.  Seymour,  5  N.  Y.  Supp.  648,  holding  that 
he  may  do  so,  though  the  suit  is  by  the  corporation 
against  the  board  for  fraud. 
Contra,  Bright  vs.  Metairie  Cem.  Assoc.,  33  La.  Ann.  58. 

The  president  may  bring  a  writ  of  entry  to  foreclose  a 
mortgage. 

Smith  Charities  vs.  Connolly,  157  Mass.  272. 

The  president  can  not  authorize  an  attorney  to  accept  serv- 
ice where  the  board  of  directors  were  accustomed  to  vote  on 
the  employment  of  attorneys. 

Bridgeport  Sav.  Bank  vs.  Eldredge,  28  Conn.  556. 

The  president  and  secretary  authorized  to  execute  a  mort- 
gage have  no  authority  to  insert  a  provision  to  pay  the  at- 
torney fee  in  case  of  foreclosure.  Ratification  of  the  mortgage 
by  the  directors  without  knowledge  of  such  provision  is  not 
ratification  thereof. 

Pacific,  etc.  Mill  vs.  Dayton,  etc.  Ry.,  5  Fed.  Rep.  852. 
The  case  of  Ashuelot,  etc.  Co.  vs.  Marsh,  55  Mass.  507, 
holds  that  the  president  can  not  cause  an  action  to  be  com- 
menced.   Where  the  president  is  dead,  the  vice-president  may 
employ  an  attorney. 

Coleman  vs.  West,  etc.  Co.,  25  W.  Va.  148. 
A  hold-over  president  and  manager  for  sixteen  years  may 
institute  a  suit  in  behalf  of  the  corporation. 

Lucky  Queen  Min.  Co.  vs.  Abraham,  26  Oreg.  282. 
The  president  and  general  manager  may  engage  an  attor- 
ney to  give  advice  in  company's  matters. 

Dallas,  etc.  Co.  vs.  Crawford,  44  S.  W.  Rep.  875  (Tex.). 


OFFICERS     AND    AGENTS  219 

A  hank  president  has  no  power  to  employ  an  attorney. 

Pacific  Bank  vs.  Stone,  53  Pac.  Rep.  634  (Cal.). 
He  may  carry  out  contracts  where  expressly  authorized 
so  to  do,  or  if  he  is  expressly  authorized  to  act,  he  may  make 
such  contracts  as  are  necessary  to  carry  out  the  authority 
delegated  to  him. 

Under  express  power  to  have  full  control  of  the  business, 
the  president  may  purchase  materials. 

Castle  vs.  Belfast,  etc.  Co.,  72  Me.  167. 
Under  power  to  adjust  and  pay  losses,  he  may  transfer 
papers. 

Baker  vs.  Cotter,  45  Me.  236;  Aspinwall  vs.  Meyer,  2 
Sandf.  186,  S.  C,  3  N.  Y.  290,  where  the  express  power 
was  very  general. 

Express  authority,  of  course,  may  be  given  to  the  presi- 
dent to  sell  and  assign  the  securities  of  the  corporation. 

Mitchell  vs.  Deeds,  49  111.  416. 

Authority  to  the  president  to  borrow  includes  authority 
to  give  ordinary  securities ;  i.  e.,  bonds,  notes,  acceptances, 
and  collaterals.  A  person  dealing  with  him  may  rely  on  it. 
He  is  not  bound  to  know  that  the  president's  authority  has 
been  revoked. 

Hatch  vs.  Coddington,  95  U.  S.  48. 

Where  the  president  has,  by  by-laws,  authority  to  make  a 
contract,  and  does  make  one,  and  it  is  signed  by  him  as  such, 
though  no  corporate  seal  and  no  resolution  are  recited,  the 
president  may  compromise  and  release  the  same.  Six  months' 
delay  by  directors  in  repudiating  the  compromise  after  knowl- 
edge is  a  fatal  delay 

Rolling  Mill  vs.  St.  Louis,  etc.  R.  R.,  120  U.  S.  256. 
Parol  authority  to  the  president  suffices  to  enable  him  to 
pay  out  money. 

New  Orleans  Bldg.  Co.  vs.  Lawson,  11  La.  34. 
Although  the  president  is  given  power  to  make  a  contract, 
yet  the  directors  may  make  it,  and  their  action  overrules  his. 
East,  etc.  Co.  vs.  Brower,  80  Ga.  258. 


220  INDUSTRIAL     CORPORATIONS 

Authority  to  sell  gives  authority  to  contract  to  sell. 
Augusta  Bank  vs.  Hamblet,  35  Me.  491. 

Officers  authorized  to  give  a  note  can  not  agree  to  pay  at- 
torney fees. 

Hardin  vs.  Iowa,  etc.  Co.,  78  Iowa  726. 

The  authority  t)f  a  president  to  sell  or  lease  gives  him 
power  to  point  out  and  make  representations  as  to  the  boun- 
daries. 

Holmes  vs.  Turner's  Falls  Co.,  150  Mass.  535. 

The  president  who  makes  an  assignment  of  the  company's 
assets  for  the  benefit  of  creditors  under  a  resolution  of  the 
board  of  directors  can  not  afterward  attack  it. 

Re  George  T.  Smith,  etc.  Co.,  86  Mich.  149. 

The  authority  of  the  president  to  buy  property  gives  au- 
thority also  to  put  on  credit. 

Arapahoe,  etc.  Co.  vs.  Stevens,  13  Colo.  534. 

Under  a  by-law  giving  him  authority,  the  president  may 
purchase  on  credit. 

Siebe  vs.  Joshua,  etc.  Works,  86  Cal.  390. 

An  assignment  of  a  corporate  claim  by  the  manager  and 
president   in    the   regular   course   of   business,    and    with   the 
knowledge  and  consent  of  the  board  of  directors,  is  sufficient. 
Greig  vs.  Riordan,  99  Cal.  316. 

Under  a  broad  power  given  to  the  president  to  make  con- 
tracts, he  may  take  a  lease  of  property. 

Hawley  vs.  Gray,  etc.  Co.,  106  Cal.  337. 

Where  the  president  is  in  the  habit  of  and  is  permitted 
to  transact  business  for  the  corporation  continuously  for  a 
long  period  of  time  with  the  consent  of  the  directors,  the 
corporation  is  bound  by  his  acts. 

"The  execution  of  the  paper  could  not  be  held  to  be  in 
excess  of  the  power  given,  and  it  was  clearly  the  duty  of  the 
directors  to  give  contrary  instructions,  if  they  wished  to  with- 
draw the  general  management  from  the  president ;  and  to  dis- 


OFFICERS     AND     AGENTS  221 

affirm  the  action  of  their  agents  promptly  and  at  once,  if  they 
object  to  it." 

Fitzgerald,  etc.  Co.  vs.  Fitzgerald,  137  U.  S.  98,  109. 

The  president  binds  the  company  when  he  does  all  the 
business  with  the  knowledge  and  consent  of  the  directors. 
McComb  vs.  Barcelona,  etc.  Assoc.,  134  N.  Y.  598,  608. 

Where  for  eight  years  the  president  has  been  allowed  to 
manage  and  carry  on  the  whole  business  of  the  company,  and 
to  indorse  its  name  to  notes  in  order  to  raise  money  for  the 
business,  and  the  company  had  no  cash  capital  and  no  other 
way  of  obtaining  money,  it  is  for  the  jury  to  say  whether  the 
company  is  bound  by  such  an  indorsement  by  him. 

Fifth  Nat.  Bank  vs.  Navassa,  etc.  Co.,  119  N.  Y.  256; 

Cf.  National  Bank  vs.  Navassa  Phosphate  Co.,  56  Hun. 

136. 

Where  for  many  years  the  president  has  managed  a  com- 
pany, the  company's  note  executed  by  him  binds  the  company 
without  special  authority. 

Martin  vs.  Niagara,  etc.  Co.,  122  N.  Y.  165,  afFg  44 

Hun.  130. 

Where  the  president  for  several  years  has  run  the  com- 
pany, borrowed  money  for  it,  and  given  its  notes,  etc.,  and  the 
by-laws  give  him  "general  supervision  over  the  property  and 
affairs  of  the  corporation,"  the  company's  note  made  by  him, 
and  an  assignment  of  "$150,000  of  such  good  and  collectible 
accounts  now  existing  or  that  shall  hereafter  accrue  or  be  ac- 
quired in  the  conduct  of  the  business,"  are  valid. 

Preston  Nat.  Bank  vs.  George  T.  Smith,  etc.  Co.,  84 

Mich.  364. 

A  president  who  has  been  accustomed  to  issue  corporate 
notes  may  bind  the  corporation  by  similar  note. 
McDonald  vs.  Chisholm,  131  111.  273. 

A  general  understanding  that  the  president  and  secretary 
shall  manage  the  business  and  make  contracts,  and  their  open 
and  public  assumption  of  that  power,  with  the  knowledge  and 


222  INDUSTRIAL     CORPORATIONS 

acquiescence  of  the  directors,  are  equal  to  a  vote  of  the  di- 
rectors authorizing  them  to  make  contracts. 

Sherman,  etc.  Co.  vs.  Morris,  43  Kan.  282. 
Where  the  president  and  secretary  of  a  mining  company 
have  for  a  long  time  signed  checks  and  they  have  been  paid  by 
a  bank,  they  may  continue  to  draw  checks  and  the  bank  must 
pay  them.  The  corporation  is  liable  for  overdrafts  caused 
thereby. 

Mining  Co.  vs.  Angelo,  etc.  Bank,  104  U.  S.  192. 
A  uniform  practice  of  a  company  for  several  months  previ- 
ous to  the  transfer  of  a  corporate  note  by  its  president,  in  case 
of  notes  negotiated  for  the  purpose  of  raising  money  to  carry 
on  its  legitimate  business,  where  such  notes  were  payable  to 
the  company,  to  have  them  indorsed  by  the  president  is  suffi- 
cient authority  for  his  indorsement. 

Marine  Bank  vs.  Clement,  31  X.  Y.  33. 
See  also,  in  general,  Chicago,  etc.  Ry.  vs.  James,  24  Wis. 
388;  First  Nat.  etc.  Bank  vs.  North,  etc.  Co.,  86  Mo.  125,  where 
the  president  and  the  secretary  were  accustomed  to  make 
notes.  Whether  the  board  of  directors  for  three  years  relin- 
quishes to  the  president  the  exclusive  management  of  the 
business  of  the  corporation  and  the  purchase  of  all  classes 
of  articles,  giving  corporate  notes,  bills,  and  securities  there- 
for, and  then  the  directors  took  charge  and  for  several  years 
continued  business  without  repudiating  his  acts,  his  purchase 
of  locomotives  and  giving  corporate  notes  therefor  while  he 
was  in  charge  binds  the  corporation. 

Olcott  vs.  Tioga  R.  R.,  27  N.  Y.  546. 

If  accustomed  so  to  do,  the  president  may  settle  an  ac- 
count and  take  a  due-bill  in  payment. 

Dougherty  vs.  Hunter,  54  Pa.  St.  380. 

Where  the  president  has  been  accustomed  to  make  and 
indorse  paper,  the  corporation  will  be  bound,  even  though  the 
directors  supposed  that  all  business  had  been  stopped. 

National   Park   Bank  vs.  German,  etc.   Co.,  53   N.   Y. 

Super  Ct.  367. 


OFFICERS    AND    AGENTS  223 

Where  the  president  has  several  times  been  authorized  to 
pledge  corporate  securities,  and  now  does  so  without  special 
authorization,  and  a  majority  of  the  directors  rartify  the  act, 
not  in  meeting,  but  separately,  the  pledge  is  legal. 
Bibb  vs.  Hall,  101  Ala.  79. 

Where  the  president  owns  practically  all  the  stock,  and 
for  years  has  managed  the  business  without  any  meeting  of 
the  board  of  directors,  a  sale  of  the  corporate  property  by  him 
is  legal. 

McElroy  vs.  Minnesota,  etc.  Co.,  71   N.  W.  Rep.  652 

Wis. 

The   authority   of   the   president  to   discharge   mortgages 
may  be  shown  by  the  fact  that  he  has  done  so  many  times. 
Swasey  vs.  Emerson,  168  Mass.  118. 

The  power  of  a  president  of  a  bank  to  rediscount  paper 
may  arise  from  his  having  done  so  for  a  long  time  to  the 
knowledge  of  the  board  of  directors. 

U.  S.  Nat.  Bank  vs.  First  Nat.  Bank,  79  Fed.  Rep.  296. 

Where  the  president  of  a  bank  is  practically  manager,  he 
may  settle  a  claim  by  taking  an  assignment  of  a  judgment. 
First  Nat.  Bank  vs.  New,  146  Ind.  411. 

Long  usage  may  give  the  president  authority. 

Estes  vs.  German  Nat.  Bank,  62  Ark.  7;  Missouri  Pac. 
Ry.  vs.  Sidell,  67  Fed.  Rep.  464. 

Where  the  president,  who  is  also  general  manager  and 
financial  agent,  is  accustomed  to  borrow  money  for  the  cor- 
poration, he  binds  the  company  by  a  loan,  even  though  he 
misapplies  the  proceeds. 

Kraft  vs.  Freeman,  etc.  Co.,  87  N.  Y.  628. 

If  he  has  been  accustomed  for  a  long  time  to  sign  notes, 
a  person  taking  a  note  without  his  signature  is  not  protected. 
Davis,  etc.  Co.  vs.  Best,  105  N.  Y.  59. 

The  president  has  no  implied  power  to  sell  the  lands  of 
the  company,  and  the  power  given  by  usage  to  former  presi- 


224  INDUSTRIAL     CORPORATIONS 

dents  to  sell  and"  take  a  purchase-money  lien  does  not  give 
power  to  sell  without  retaining  that  lien. 

Fitzhugh  vs.  Franco-Texas  Land  Co.,  81  Tex.  306. 

The  president,  even  though  he  is  also  manager,  head  and 
majority  stockholder,  can  not  bind  the  corporation  by  his 
statement  that  the  corporation  was  to  indemnify  him  from 
loss  on  certain  indorsements  made  by  him. 

Minneapolis  Trust  Co.  vs.  Clark,  47  Minn.  108. 

Where  the  board  of  directors  allow  one  of  its  officers  the 
exclusive  management  of  its  affairs,  the  company  is  bound  by 
his  acts. 

Davies  vs.  New  York  Concert  Co.,  13  N.  Y.  Supp.  739; 

Sparks  vs.  Dispatch  Transfer  Co.,  104  Mo.  531. 

Although  the  president  has  been  accustomed  to  issue  cor- 
porate notes,  yet,  if  the  bank  t'aking  the  note  in  question  knew 
that  the  proceeds  were  to  be  used  by  him  in  his  private  busi- 
ness, the  note  can  not  be  enforced  against  the  corporation. 

Third  Nat.  Bank  vs.  Marine  Lumber  Co.,  44  Minn.  65. 

It  may  be  stated  generally  that  where  the  directors  allow 
a  president  to  do  the  business  of  the  corporation  and  accept 
the  benefits  of  his  contracts  or  ratify  his  acts,  even  without 
any  authority,  it  will  bind  the  corporation. 

Pittsburgh,  etc.  Ry.  vs.  Keokuk  Bridge  Co.,  131  U.  S. 

371. 

Where  the  president  bought  railroad  iron  without  author- 
ity so  to  do,  but  the  directors  stood  by  and  allowed  the  cor- 
poration to  use  it,  the  company  is  liable  for  the  price. 

Scoft  vs.  Middleton,  etc.  R.  R.  86  N.  Y.  200. 
If  a  corporation  retains  and  uses  money  borrowed  for  it 
by  its  officer  in  excess  of  his  authority,  it  ratifies  the  trans- 
action, and  is  liable. 

Willis  vs.  St.  Paul  Sanitation  Co.,  53  Minn.  370. 

A  pledge  of  bonds  by  the  president  is  ratified  by  the  di- 
rectors knowing  thereof  and  accepting  the  proceeds. 

Prentiss,  etc.  Co.  vs.  Godchaux,  66  Fed.  Rep.  224. 


OFFICERS     AND    AGENTS'  225 

A  bank  is  liable  for  money  received,  and  used  by  it  in  its 
business,  even  though  the  president  was  not  authorized  to 
borrow  it. 

Blanchard  vs.  Commercial  Bank,  75  Fed.  Rep.  249. 

A  bank  can  not  enforce  notes  which  its  president  obtains 
for  it  by  misrepresentations  inducing  the  maker  of  the  notes 
to  give  them  in  exchange  for  the  notes  of  a  worthless  party. 
Wilson  vs.  Pauly,  Fed.  Rep.  129. 

The  president  may  release  a  mortgage  where  a  majority 
of  the  directors  separately  authorized  it,  and  the  stockholders 
in  meeting  assembled  gave  him  general  authority. 

Smith  vs.  Wells,  etc.  Co.,  46  N.  E.  Rep.  1000  (Ind.). 

By  acquiescence  of  the  board  of  directors,  the  president's 
contract  employing  an  editor  and  manager  of  a  newspaper 
may  bind  the  company. 

Jones  vs.  Williams,  39  S.  W.  Rep.  486  (Mo.). 

Allowing  the  contract  to  be  completed  cures  any  defect  of 
power  on  the  part  of  the  president  to  make  the  contract. 
Omaha,  etc.  Co.  vs.  Burns,  49  Neb.  229. 

Accepting  the  benefit  of  the  president's  contract  cures  any 
defect  in  his  authority. 

Davies  vs.  Harvey  Steel  .Co.,  6  N.  Y.  App.  Div.  166. 

By  accepting  a  deed  of  a  right  of  way  a  corporation  ac- 
cepts written  covenants  which  its  president  makes  in  connec- 
tion therewith. 

Mobile,  etc.  Ry.  vs.  Gilmer,  85  Ala.  422. 

Where  the  president,  as  the  financial  manager,  pledges  the 
company's  bonds,  and  for  more  than  a  year  such  pledge  con- 
tinues without  objection,  the  pledge  is  ratified. 

Illinois  T.  &  S.  Bank  vs.  Pacific  Ry.,  49  Pac.  Rep.  197 
(Cal.). 

Although  the  by-laws  require  notes  to  be  signed  by  the 
secretary,  yet  by  acquiescence  a  note  signed  by  the  president 
alone  may  bind  the  corporation. 
16 


226  INDUSTRIAL     CORPORATIONS 

Illinois  T.  &  S.  Bank  vs.  Pacific  Ry.  49  Pac.  Rep.  197 
(CaL). 

A  chattel  mortgage  given  by  the  president  and  treasurer, 
without  previous  authority  from  the  directors,  may  be  vali- 
dated by  the  corporation  accepting  the  benefit  of  the  same 
Edelhoff  vs.  Homer,  etc.  Co.,  39  Atl.  Rep.  314  (Md.). 

A  contract  made  by  the  president  without  authority  may 
be  considered  ratified  by  the  fact  that  the  directors  individually 
knew  of  the  same,  although  they  did  not  act  uoon  the  matter 
as  a  board. 

Henry  vs.  Colorado,  etc.  Co.,  51  Pac.  Rep.  90  (Colo.). 

A  railroad  contractor  may  enforce  his  construction  con- 
tract with  a  railroad  corporation,  although  he  made  it  with 
the  president,  and  the  board  of  directors  did  not  pass  upon 
it,  where  the  contractor  proceeded  to  perform.  The  con- 
tractor was  justified  in  stopping  work  when  he  was  not  paid 
according  to  the  contract. 

Cunningham  vs.  Massena,  etc.  R.  R.,  63  Hun.  439. 

Acquiescence  in  sales  by  the  president,  where  a  vendor's 
lien  was  retained,  does  not  sustain  a  sale  by  him  without  re- 
taining such  a  lien. 

Fitzhugh  vs.  Franco-Texas  Land  Co.,  81  Tex.  306. 

Although  the  president  accepts  in  the  corporate  name  a 
draft  drawn  on  him  personally,  yet  where  the  bank  of  the 
corporation  pays  the  draft  and  charges  it  to  the  corporation, 
and  the  latter  acquiesces  for  nine  months,  it  can  not  hold  the 
bank  liable. 

McLaren  vs.  First  Nat.  Bank,  76  Wis.  259. 

.    Ratification  of  the  president's  contract  with  an  attorney. 
Merrill  vs.  Consumers'  Coal  Co.,  114  N.  Y.  216. 

A  transfer  of  all  the  property  by  the  president  is  valid 
where  the  directors  and  all  the  stockholders  knew  of  it  and 
assented  to  it. 

Fort  Worth  Pub.  Co.  vs.  Hitson,  80  Tex.  216. 


OFF1CEUS    AND    AGENTS  227 

The  company,  by  accepting  and  using  the  property  pur- 
chased by  the  president  without  authority,  thereby  ratifies 
the  purchase. 

West  Salem  Land  Co.  vs.  Montgomery  Land  Co.,  89 
Va.  192. 

That  stockholders  may  ratify  and  validate  notes  given  by 
the  president, — 

Martin  vs.  Niagara,  etc.  Mfg.  Co.,  44  Hun.  130:  afT'd 
122  N.  Y.  165. 

Tlie  contracts  of  the  president  may  be  ratified  subse- 
quently by  the  board  of  directors. 

Wehrhane  vs.  Nashville,  etc.  R.  R.,  4  X.  Y.  St.  Rep.  541. 

For  a  clear  statement  of  this  principle,  see  Dabney  vs. 
Stevens,  40  How.  Pr.  341. 

Rates  as  advertised  by  the  president  bind  the  railroad 
when  'it  continues  to  accept  them. 

Willard  vs.  Gould,  32  N.  H.  230. 

The  president's   unauthorized   contracts,  when   known   to 
and  acted  upon  by  the  directors  and  corporation,  are  binding. 
Perry  vs.  Simpson,  etc.  Co.,  37  Conn.  520. 

Where  the  president  of  a  bank  instructs  its  correspondent 
bank  to  charge  to  the  former  a  debt  due  by  him  to  the  latter 
bank,  and  the  accounts  of  the  latter  to  the  former  bank  showed 
to  that  effect,  and  no  objection  is  made,  the  former  bank  is 
bound. 

Burton  vs.  Burley,  9  Biss.  253. 

A  lease  by  the  president  and  treasurer  without  authority 
may  be  ratified  by  the  stockholders. 

Mount  Washington  Hotel  Co.  vs.  Marsh,  63  N.  H.  230. 
Or  a  mortgage. 

Martin  vs.  Niagara,  etc.  Co.,  44  Hun.  130. 
A  bank  is  liable  on  an  agreement  of  its  president  to  give 
a  person  ten  shares  of  stock  if  he  would  deposit  with  it,  the 
deposit  having  been  made. 

Rich  vs.  State  Nat.  Bank,  7  Neb.  201. 


228  INDUSTRIAL     CORPORATIONS 

Where  the  company  acquiesces  in  work  done  by  contract 
with  the  president,  it  is  liable. 

Grape  Co.  vs.  Small,  40  Md.  395. 

The  company  may  ratify  a  mortgage  given  by  him. 

Krider  vs.  Western  College,  31  Iowa  547;  Sherman  vs. 
Fetch,  98  Mass.  59,  where  all  but  one  of  the  directors 
knew  and  acquiesced. 

The  acquiescence  of  a  minority  of  the  directors  is  insuffi- 
cient. 

Yellow,  etc.  Co.  vs.  Stevenson,  5  Nev.  224. 

Acceptance  of  the  property  purchased,  with  knowledge, 
is  ratification. 

Dent  vs.  North,  etc.  Co.,  49  N.  Y.  390. 

The  failure  of  the  president  to  repudiate  at  once  an,  agent's 
unauthorized  act  is  ratification. 

First  Nat.  Bank  vs.  Fricke,  75  Mo.  178;  Alabama,  etc. 
R.  R.  vs.  Kidd,  29  Ala.  221. 

Ratification  of  a  president's  acts  may  arise  by  long  use 
of  the  results,  even  though  the  directors  expressly  repudiated 
the  acts,  but  did  not  notify  the  other  party. 

Belleville  Sav.  Bank  vs.  Winslow,  35  Fed.  Rep.  471. 

It  is  a  sufficient  ratification  if  the  directors  discuss  the 
matter  at  a  meeting,  though  they  take  no  action. 

Walworth,  etc.  Bank  vs.  Farmers',  etc.  Co.,  16  Wis.  629. 
A  corporate  agent  with  full  powers  may  ratify  the  presi- 
dent's act. 

Perry  vs.  Simpson,  etc.  Co.,  37  Conn.  520. 

Acquiescence  of  the  board  of  directors  may  cure  the  omis- 
sion of  a  previous  resolution  as  required  by  the  charter  in 
the  issue  of  the  bonds. 

Curtis  vs.  Leavitt,  15  N.  Y.  1,  the  court  saying  of  the 
board  (p.  49)  :— 

"They  may  previously  resolve ;  they  may  subsequently  ac- 
quiesce ;  they  may  expressly  ratify ;  they  may  intentionally 
receive  and  appropriate  the  proceeds  of  the  unauthorized 


OFFICERS     AND     AGENTS  229 

transaction,  and  so  put  it  out  of  their  power  to  dispute  its 
validity." 

The  acts  of  the  president  of  a  corporation  may  be  inferred 
even  though  the  transaction  may  be  a  contract  under  seal 
and  the  minutes  of  the  corporation  fail  to  show  any  authority 
for  the  act  whatever. 

Jacksonville,  etc.  Nav.  Co.  vs.  Hooper,  160  U.  S.  514. 

§  185.     Vice-president. 

Like  rules  govern  the  vice-president  where  he  has  been 
allowed  for  a  long  series  of  time  to  transact  the  business  of  the 
corporation. 

The  vice-president  of  a  bank  may,  by  reason  of  having  for 
a  long  time  conducted  the  business  of  the  bank,  have  power 
to  assign  a  judgment  owned  by  the  bank. 
Cox  vs.  Robinson,  82  Fed.  Rep.  277. 

The  vice-president  may  sign  a  corporate  deed  if  the  presi- 
dent refuses  to  do  so. 

Smith  vs.  Smith,  62  111.  492. 

The  fact  that  a  vice-president  swears  to  a  complaint  does 
not  raise  a  presumption  that  the  company  authorized  its 
service. 

American  Waterworks  Co.  vs.  Venner,  18  N.  Y.  Supp. 

379. 

The  vice-president  may  make  an  assignment  for  the  bene- 
fit of  creditors,  where  he  is  authorized — 

"to  use  all  means  and  do  all  acts  and  make  all  deeds  by  him 
deemed  necessary  or  proper  to  serve  the  best  interest  of  the 
association,  and  to  use  the  corporate  seal  for  such  purpose." 
Huse  vs.  Ames,  104  Mo.  91. 

The  vice-president  has  no  power  to  sell  the  bonds  of  the 
company,  even  though  he  is  a  director,  member  of  the  executive 
committee,  and  one  of  the  two  persons  who  "run"  the  com- 
pany. The  purchasers  are  not  bona  fide. 

American  L.  &  T.  Co.  vs.  St.  Louis,  etc.  Ry.,  42  Fed. 

Rep.  819. 


230  INDUSTRIAL     CORPORATIONS 

It  may  be  proved  that  the  vice-president  had  authority 
to  accept  a  draft,  although  drawn  by  himself  upon  the  com- 
pany. 

Rumbough  vs.  Southern  Imp.  Co.,  106  N.  C.  461. 

A  suit  is  presumed  to  be  authorized  where  the  vice-presi- 
dent swears  to  the  pleading. 

Lacaze  vs.  Creditors,  46  La.  Ann.  237. 

The  vice-president's  contracts  may  be  ratified  by  the  di- 
rectors. 

Dallas  vs.  Columbia,  etc.  Co.,  158  Pa.  St.  444. 

The  vice-president  may,  in  certain  circumstances,  employ 
counsel. 

Streeton  vs.  Robinson,  102  Cal.  542. 

The  vice-president  has  no  power  to  sign  notes. 
Morris  vs.  Griffith,  etc.  Co.,  69  Fed.  Rep.  131. 

As  to  the  powers  of  a  vice-president,  see  also  Missouri, 
etc.  Ry.  vs.  Faulkner,  88  Tex.  649. 

§  186.     Secretary  and  Treasurer. 

The  secretary  and  treasurer  of  a  corporation  have  no  power 
to  act  or  contract  for  the  corporation. 

The  secretary  has  no  power  to  assign  the  company's  claims 
for  goods  sold  by  it.  The  assignee's  rights  are  not  perfected 
by  the  directors'  resolution  made  after  he  sues  on  the  account. 
Read  vs.  Buffum,  79  Cal.  77. 

The  secretary  of  a  religious  corporation  can  not  contract 
for  paying  for  the  corporation. 

Thomason   vs.   Grace,   etc.   Church,  45   Pac.   Rep.  939 
(Cal.). 

The  secretary  has  no  implied  power  to  bind  the  company. 
Wolf  vs.  Davenport,  etc.  R.  R.,  93  Iowa  218. 

He  can  not  sell  and  assign  its  notes. 

Blood  vs.  Marcuse,  38  Cal.  590. 
Nor  sign  a  draft  for  it. 

First  Nat.  Bank  vs.  Hogan,  47  Mo.  474. 


OFFICERS     AND    AGENTS  231 

Nor  purchase  iron  for  it. 

Williams  vs.  Chester,  etc.  R.  R.,  15  Jur.  828. 

Nor  accept  a  bill  of  exchange. 
Neale  vs.  Turton,  4  Bing.  149. 

Nor  bind  it  to  pay  a  debt  of  an  old  company  whose  prop- 
erty it  purchased  upon  a  reorganization. 

American,  etc.  Ry.  vs.  Miles,  52  111.  174. 

Nor  rent  a  place  for  the  company. 

Ridley  vs.  Plymouth,  etc.  Co.,  2  Exch.  711. 

Nor  accept  accommodation  paper. 

Farmers',  etc.  Bank  vs.  Empire,  etc.  Co.,  5  Bosw.  275. 

Nor  purchase  notes. 

Kingsbridge  Flour  Mill  Co.  vs.  Plymouth,  etc.  Co.,  2 
Exch.  718. 

f  Where  the  assistant  secretary  signs  a  mortgage  instead  of 
the  secretary,  it  is  sufficient  to  prove  that  he  was  the  de  facto 
assistant  secretary. 

Augusta,  etc.  R.  R.  vs.  Kittel,  52  Fed.  Rep.  63. 

The  secretary,  however,  is  one  of  the  agents  of  the  com- 
pany, but  he  is  confined  to  his  customary  duties,  and  in  such 
duties,  he  represents  the  company. 

Hastings  vs.  Brooklyn  Life  Ins.  Co.,  138  N.  Y.  473. 

The  secretary,  like  any  other  managing  agent  of  the  cor- 
poration, may  act  and  contract  when  he  is  expressly  au- 
thorized, or  his  acts  and  contracts  may  be  ratified  after  they 
are  made. 

Hill  vs.  Manchester,  etc.  Co.  5  B.  &  Ad.  866,  where  the 
secretary  was  authorized  to  affix  the  corporate  seal. 

New  England,  etc.  Ins.  Co.  vs.  DeWolf,  25  Mass.  56, 
where  the  company  accepted  the  benefits.  A  note  signed 
by  the  corporate  secretary  as  directed  by  the  president,  the 
money  therefor  being  used  by  the  corporation,  is  enforceable 
against  it. 

Jansen  vs.  Otto  Stietz,  etc.  Co...  1  N.  Y.  Supp.  605. 


232  INDUSTRIAL     CORPORATIONS 

Although    corporate   notes    given    by    the    secretary   to    a 
bank  are  unauthorized,  yet  if  the  money  was  used  regularly 
in  the  business  of  the  company,  it  is  liable. 
Pauly  vs.  Pauly,  107  Cal.  8. 

Where  the  secretary  has  been  permitted  to  sell  the  notes 
of  the  corporation,  a  transfer  of  the  note  by  him  to  the  bank 
makes  the  latter  a  bona  fide  purchaser,  the  corporation  being 
the  payee. 

Commercial  Nat.  Bank  vs.  Brill,  37  Neb.  626. 

The  secretary  has  power  to  endorse  the  company's  note 
for  discount  or  sale  where  for  a  long  time  he  has  been  allowed 
to  do  so. 

Blake  vs.  Domestic,  etc.  Co.,  38  All.  Rep.  241  (N.  J.). 

The  treasurer  of  a  company  is  not  unlike  the  secretary 
and  has  no  power  to  contract  for  the  corporation  by  virtue 
of  his  being  treasurer.  The  treasurer  has  no  power  to  bor- 
row money  and  give  the  corporate  note  therefor,  and  the  com- 
pany was  not  liable  where  the  money  was  paid  into  the 
corporate  treasury  and  immediately  embezzled  by  the*  treas- 
urer. 

Craft  vs.  South  Boston  R.  R.,  150  Mass.  207. 

A  treasurer  has  no  power  to  sign  the  corporate  name  to 
promissory  notes  unless  he  is  expressly  given  that  power.  If 
the  note  is  made  payable  to  his  own  order,  the  purchaser  of  it 
m.ust  take  notice  that  it  was  issued  without  authority. 

Chemical  Nat.  Bank  vs.  Wagner,  20  S.  W.  Rep.  535 
(Ky.). 

Notes  of  a  cattle  company  purporting  to  be  signed  by 
it  through  its  treasurer  a,re  presumed  to  have  been  author- 
ized. 

Corcoran  vs.  Snow  Cattle  Co.,  151  Mass.  74. 
Where  a  corporation  repudiates  a  pledge  of  stock  made 
by  its  treasurer,  it  can   not  sue  the  pledgee  for  the  money 
received  by  the  pledgee  upon  a  sale  of  the  stock  by  the  latter. 
Holden  vs.  Metropolitan  Nat.  Bank,  151  Mass.  112. 


OFFICERS     AND    AGENTS  233 

The  treasurer  can  not,  upon  the  sale  of  a  note  held  by 
the  company,  endorse  the  note  so  as  to  render  the  company 
liable,  even  though  a  trustee  was  aware  thereof,  the  opening 
of  an  account  with  the  bank  being  unknown  to  the  company. 

Columbia  Bank  vs.  Gospel  Tabernacle,  57  N.  Y.  Super. 

Ct.  149. 

A  treasurer  has  no  power  to  issue  'corporate  notes,  and 
where  he  does  so,  the  proceeds  being  used  to  pay  his  per- 
sonal debt  to  the  corporation,  the  notes  are  not  binding  on 
the  company. 

First  Nat.  Bank  vs.  Council  Bluffs,  etc.  Co.,  56  Hun. 
412. 

The  corporate  endorsement  of  a  note  by  the  treasurer 
without  authority  and  for  accommodation  does  not  bind  the 
corporaton. 

Wahlig  vs.  Standard,  etc.  Co.,  9  N.  Y.  Supp.  739. 

The  treasurer  has  no  inherent  authority  to  endorse. 
Security  Bank  vs.  Kingsland,  5  N.  D.  263. 

The  treasurer  has  no  implied  power  to  make  a  corporate 
Nnote. 

Oak,  etc.  Co.  vs.  Foster,  7  N.  M.  650. 

The  treasurer  of  a  manufacturing  corporation  has  no  im- 
plied power  to  bind  the  corporation  as  an  accommodating 
endorser,  and  a  person  taking  the  note  with  notice  can  not 
enforce  such  endorsement. 

Usher  vs.  Raymond  Skate  Co.,  163  Mass.  1. 

An  arbitration  agreed  to  by  the  treasurer  was  sustained 
in  Remington  Paper  Co.  vs.  London  Assur.  Corp.,  12  N.  Y. 
App.  Div.  218. 

A  demand  for  rent  may  properly  be  made  on  the  secre- 
tary and  treasurer. 

State  vs.  Felton,  52  N.  J.  L.  161. 

He   can   not   compromise   or   relinquish    its   claims. 

Carver  Co.  vs.  Manufacturers',  etc.  Co.,  72  Mass.  214. 


234  INDUSTRIAL     CORPORATIONS 

Nor  sell  and  endorse  its  paper. 

Bradley  vs.  Warren,  etc.  Bank,  127  Mass.  107;  Holden 
vs.  Upton,  134  Mass.  177;  Contra,  Perkins  vs.  Bradley, 

24  Vt.  66. 

Nor  assume  the  debt  of  a  third  prson. 

Stark  Bank  vs.  U.  S.  Pottery  Co.,  34  Vt.  144. 

Nor  sell  and  assign  a  mortgage  owned  by  the  corporation, 
even  though  he  uses  the  corporate  seal. 
Jackson  vs.  Campbell,  5  Wend.  572. 

lie  may  employ  an  attorney  to  collect  unpaid  bills. 
Bristol,  etc.  Bank  vs.  Keary,  128  Mass.  298. 

He   can   not  give   a  release  under  seal. 
Dedham  Inst.  vs.  Slack,  60  Mass.  408. 

He  may  accept  money. 

Brown  vs.  Winnissimmet  Co.,  93  Mass.  326. 

The  treasurer's  acts  may  become  valid  by  custom  or  by 
acquiescence  in  and  by  the  corporation. 

The  treasurer  has  no  inherent  power  to  sign  and  endorse 
corporate  notes,  but  long  usage  may  constitute  such  au- 
thority. 

Page  vs.  Fall  River,  etc.  R.  R.,  31  Fed.  Rep.  257. 

Lester  vs.  Webb,  83  Mass.  34,  where  the  treasurer  en- 
dorsed a  note. 

Bank  of  Attica  vs.  Pettier,  etc.  Co.,  1  N.  Y.  Supp.  483; 
Partridge  vs.  Badger,  25  Barb.  146. 

Foster  vs.  Ohio,  etc.  Co.,  17  Fed.  Rep.  130,  where  he  gave 
a  note.  Where  the  secretary  and  treasurer  have  been  ac- 
customed to  manage  the  entire  business  and  make  contracts, 
a  contract  entered  into  by  them  for  the  company  is  legal  and 
enforceable. 

Moore  vs.  H.  Gaus  Co.,  113  Mo-.  98;  Foster  vs.  Ohio, 

etc.  Co.,  17  Fed.  Rep.  130. 

Fifth,  etc.  Bank  vs.  First  Nat.  Bank,  48  N.  J.  L.  513,  where 
the  treasurer  pledged  securities. 


OFFICERS     AND    AGENTS  235 

It  may  be  said  generally  that  the  treasurer  can  assume  to 
be  a  managing  agent  of  the  corporation,  and  when  it  is  cus- 
tomary for  him  to  thus  act,  he  may-  sell  its  property  and 
borrow  money  and  give  indemnity. 

Phillips  vs.  Campbell,  43  N.  Y.  271 ;  Fay  vs.  Noble,  66 
Mass.  1 ;  Fifth,  etc.  Bank  vs.  First  Nat.  Bank,  48  N.  J. 
L.  513. 

Yet,  it  rrfust  not  be  understood  that  they  have  any  such 
power.  It  is  clearly  without  their  authority. 

Odd  Fellows  vs.  Bank  of  Sturgis,  42  Mich.  461  ;  Gafford 
vs.  American,  etc.  Co.,  77  Iowa  736;  Butler  vs.  Duprat, 
51  N.  Y.  Super.  Ct.  77;  Alexander  vs.  Cauldwell,  83  N. 
Y.  480;  Cf.  Alexander  vs.  Brown,  9  Hun.  641 ;  Winsted. 
etc,  Co.  vs.  New  Gritain,  etc.  Co.,  38  Atl.  Rep.  310 
(Conn.)  ;  Adams  vs.  Mills,  60  N.  Y.  533. 

A  corporation  can  always  acquiesce  in  contracts  made  by 
any  of  its  officers.  It  can  acquiesce  in  contracts  made  by 
the  secretary  and  treasurer. 

St.  James's  Parish  vs.  Newburyport,  etc.  R.  R.,  141  Mass. 
500,  where  the  treasurer  gave  an  obligation  under  seal 
and  reported  it  in  his  reports,  and  a  committee  approved. 
If  the  company  ratifies  a  contract  made  by  the  president 
and  secretary,  the  company  may  compel  its  officers  to  give 
it  the  benefit  of  the  contract. 

Church  vs.  Sterling,  16  Conn.  388. 

Accepting  the  benefit  of  an  insurance  contract   made  by 
the  secretary  and  president   accepts  the   contract   itself.' 
Emmet  vs.  Reed.  8  N.  Y.  312. 

An  endorsement  by  the  secretary,  with  the  knowledge  and 
acquiescence  of  the  directors,  is  binding. 
Williams  vs.  Cheney,  69  Mass.  215. 

So,  also,  where  he  pledges  bonds  with  their  knowledge 
and  acquiescence. 

Darst  vs.  Gale..  83  111.  136. 

And  see  Durar  vs.  Hudson,  etc.  Ins.  Co.,  24  N.  J.  L. 
171,  in  insurance  contracts;  and  Conover  vs.  Mutual  Ins. 


236  INDUSTRIAL     CORPORATIONS 

Co.,    1    N.    Y.    290,    where    he    was    accustomed    to    contract 
for  the   company. 

Chicago  Bldg.  Soc.  vs.  Crowell,  65  111.  453. 

Talladega  Ins.  Co.  vs.  Peacock,  67  Ala.  253,  where  the 
secretary  was  accustomed  to  sign  notes.  Where  a  corporation 
uses  a  wharf  under  a  contract  made  by  its  treasurer,  it  is 
liable  for  the  contract  price. 

Taylor  vs.  Albemarle,  etc.  Co.,  105  N.  C.  484. 

Taking  the  benefit  of  a  piece  of  statuary  for  advertising 
purposes  binds  it  to  pay  therefor,  though  the  treasurer  made 
the  contract. 

Ellis  vs.  Howe,  etc.  Co.,  12  Daly  78. 

§  187.     Authority  of  Officers  and  Agents. 

A  corporation  being  artificial  and  a  creature  of  the  law, 
has  no  physical  means  by  and  through  which  it  can  trans- 
act business  in  so  far  as  it  is  in  and  of  itself  concerned,  and 
bejng  a  person  separate,  apart  and  distinct  from  its  stock- 
holders, it  necessarily  follows  that  whatever  business  is  trans- 
acted for  the  corporation  must  be  done  by  and  through 
natural  persons.  Acting  separately  and  distinctly  from  the 
corporation  and  for  it,  they  become  its  agents,  and  as  such 
simply  have  the  power  of  agents,  and  no  more. 

The  officers  of  a  corporation  act  under  the  power  of  the 
charter  or  delegated  to  them  by  the  directors  or  managers 
in  whom,  as  the  representatives  of  the  corporation,  the  con- 
trol of  its  business  is  vested,  and  not  unlike  an  agent  of  a 
natural  person,  can  go  only  so  far  as  their  authority  reaches. 
That  authority  may  be  an  expressed  authority,  or  merely 
implied.  It  matters  little  what  the  name  of  the  officer  of  the 
corporation  may  be  who  transacts  the  general  business  of 
the  company,  he  has  the  implied  power  to  carry  out  its  busi- 
ness however  far-reaching  that  business  may  be.  He  may 
borrow  money,  purchase  supplies,  engage  services,  and  in 
short,  do  anything  that  is  necessary  to  carry  out  the  program 
of  the  company. 


OFFICERS     AND     AGENTS  237 

Matson  vs.  Alley,  141  111.  284;  31  N.  E.  419;  Rathbun 
vs.  Snow,  123  N.  Y.  343;  25  N.  E.  379. 

There  are  certain  limitations,  however,  upon  the  mere 
every-day  officers  of  the  corporation  in  the  conduct  of  the 
business  of  the  company.  For  instance,  they  can  not  release 
a  debtor  from  his  obligation  to  the  corporation,  nor  release 
a  subscriber  of  his  liability  on  his  subscription. 

Bank  of  United  States  vs.  Dunn,  6  Pet.  51 ;  Moshannon 
Land  &  Lumber  Co.  vs.  Sloan  (Pa.  Sup.),  7  Atl.  102; 
Potts  vs.  Wallace,  46  U.  S.  689;  13  Sup.  Ct.  196. 

All  the  powers  of  the  president  depend  for  their  authority 

outside   of  the   routine   business   of   the   company   upon    the 

expressed  delegation  of  authority  from  the  board  of  directors. 

Titus  vs.  Railroad  Co.,  37  N.  J.  Law  98;  1  Mor.  Priv. 

Corp.  537;  2  Cook,  Stock,  Stockh  &  Corp.  Law,  712, 

716;  Walworth  County  Bank  vs.  Farmers'  Loan  &  Trust 

Co.,  14  Wis.  325 ;  Templin  vs.  Railway  Co.,  73  Iowa 

548;  35  N.  W.  634;  Potts  vs.  Wallace,  146  U.  S.  689;  13 

Sup.  Ct.  196. 

All  persons  dealing  with  the  corporation  must  take  notice 
of  its  charter  and  general  notice  must  be  taken  of  its  by- 
laws. They  are  bound  to  know  whether  a  person  assuming 
to  be  an  agent  of  a  corporation  is  the  proper  officer  to  trans- 
act the  particular  business  about  which  they  are  going  to 
contract. 

Blcock's  Ex'r  vs.  Iron  Co.,  82  Va.  913;  1  S.  E.  325. 
This  rule  is  limited  in  its  force  by  the  fact  that  if  the  cor- 
poration holds  out  to  the  public  and  allows  one  of  its  sub- 
ordinate agents  to  transact  the  business  of  the  company, 
it  is  estopped  to  deny  his  power  to  make  the  particular  con- 
tract, for  that  persons  may  act  upon  the  apparent  authority 
of  the  agent  and  are  not  bound  by  any  limitations  upon  his 
power  or  secret  instruction  unbeknown  to  them. 

Rathbun  vs.  Snow,  123  N.  Y.  343;  25  N.  E.  379;  Mar- 
shall vs.  Express  Co.,  7  Wis.  1 ;  73  Am.  Dec.  381  ;  Carson 
.  City  Sav.  Bank  vs.  Carson  City  Elevator  Co.,  90  Mich. 
550;  51  N.  W.  641;  Sherman  Center  Town  Co.  vs. 
Swigart,  43  Kan.  292 ;  23  Pac.  569. 


238  INDUSTRIAL     CORPORATIONS 

An  officer  or  agent  may  act  outside  of  the  every-day 
scope  of  his  business,  if  he  is  authorized  by  the  board  of 
directors,  and  if  the  board  of  directors  permit  an  officer  to 
transact  business  without  the  scope  of  his  authority  and 
hold  him  out  to  the  public  as  a  general  agent  the  corporation 
will  be  bound  by  the  transactions  consummated  by  him. 

Fifth  Ward  Sav.  Bank  vs.  First  Nat.  Bank,  48  N.  J. 

Law  513;  7  Atl.  318;  McNeil  vs.  Boston  Chamber  of 

Commerce,  154  Mass.  277;  28  N.  E.  245;  Mining  Co. 

vs.  Anglo-Californian  Bank,  104  U.  S.  192. 

This  apparent  authority  and  holding  out  does  not  relieve 
a  person  who  contracts  with  such  an  inferior  officer  from 
his  duty  of  ascertaining  whether  he  has  authority,  because 
he  is  bound  to  know  or  should  know  that  the  officer  has 
authority  to  transact  that  which  he  purports  to  do,  however, 
if  he  has  apparent  authority  to  transact  the  business,  it  seems 
that  the  stranger  need  look  no  further. 

Credit  Co.  vs.  Howe  Mach.  Co.,  54  Conn.  357:  8  Atl. 

472;  New  York  &  N.  H.  R.  Co.  vs.  Schuyler,  34  N.  Y. 

30;  2  Gumming,  Cas.  Priv:  Corp.  119;  Fifth  Ward  Sav. 

Bank  vs.  First  Nat.  Bank,  48  N.  J.  Law  513;  7  Atl.  318; 

Page  vs.  Railroad  Co.,  31  Fed.  257. 

"The  rule  is  well  settled  that  if  a  corporation  permit  the 
treasurer  to  act  as  their  general  fiscal  agent,  and  hold  him  out 
to  the  public  as  having  the  general  authority  implied  from  his 
general  name  and  character,  and  by  their  silence  and  acqui- 
escence suffer  him  to  draw  and  accept  drafts,  and  to  indorse 
notes  payable  to  the  corporation,  they  are  bound  by  his  acts 
done  within  the  scope  of  such  implied  authority." 

Lester  vs.  Webb,  1  Allen  (Mass.)  34. 

The  by-laws  of  the  corporation  are  enactments  of  the  cor- 
poration for  the  government  of  its  officers,  its  board  of  di- 
rectors and  stockholders,  and  as  to  third  persons,  are  mere 
private  regulations  about  which  they  have  no  concern,  unless 
they  have  knowledge  of  them  or  make  the  contract  relying 
upon  them. 

Rathbun  vs.  Snow,  123  N.  Y.  343 ;  25  N.  E.  379 ;  Estate 
of  Millward-Cliff  Cracker  Co.,  161  Pa.  St.  157;  28  Atl. 
1072. 


OFFICERS     AND     AGENTS  239 

Any  act  of  an  officer  that  might  have  in  the  first  place 
been  made  by  a  corporation  may  be  ratified,  and  where  a  cor- 
poration accepts  the  benefit  of  the  contract  with  full  know- 
ledge of  the  circumstances  surrounding  it,  they  will  be 
presumed  to  have  ratified  the  contract. 

Burrill  vs.  President,  etc.,  2  Mete.  (Mass.)   163,  W.  D. 

Smith,  Cas.   Corp.    112;   M'Laughlin   vs.   Railway   Co.. 

8  Mich.  100;  Leggett  vs.  Banking  Co.,  1  N.  J.  Eq.  541  ; 

Aurora  Agricultural  &  Horticultural  Soc.  vs.  Paddock. 

80  111.  263;  Reichwald  vs.  Hotel  Co.,  106  111.  439;  Grape 

Sugar  &  Vinegar  Manuf'g  Co.  vs.  Small,  40  Md.  395: 

Despatch  Line  of  Packets  vs.  Bellamy  Manuf'g  Co.,  12 

N.  H.  205. 

Ratification,  under  such   circumstances,  is   a  mere   recon- 
tracting  and  coincidence  with  the  original  authority  to  trans- 
act the  business  in  the  first  instance. 
Despatch  Line  of  Packets,  supra. 

The  ratification  of  contracts  has  a  limitation  which  is 
a  limitation  upon  the  power  of  the  corporaton  itself  or  its 
officers  to  make  the  particular  contract  in  the  first  instance. 
If  the  contract  was  such  that  would  be  an  ultra  vires  con- 
tract, then  it  is  not  within  the  scope  of  the  charter  and  can 
not  be  ratified. 

"The  powers  of  agents  of  corporations  to  enter  into  con- 
tracts in  their  behalf  are  limited,  by  the  nature  of  things,  to 
such  contracts  as  the  corporations  are  by  their  charters  author- 
ized to  make.  .  .  .  The  same  want  of  power  to  give  author- 
ity to  an  agent  to  contract,  and  thereby  bind  the  corporation,  in 
matters  beyond  the  scope  of  their  corporate  objects,  must  be 
equally  conclusive  against  any  attempt  to  ratify  such  con- 
tract. What  they  can  not  do  directly  they  can  not  do  in- 
directly. They  can  not  bind  themselves  by  the  ratification  of 
a  contract  which  they  had  no  authority  to  make.  The- power 
of  the  agent  must  be  restricted  to  the  business  which  the 
company  was  authorized  to  do.  Within  the  scope  of  the  busi- 
ness which  they  had  power  to  transact,  he,  as  its  agent,  may 
be  authorized  to  act  for  it,  but  beyond  that  he  could  not  be 
authorized,  for  its  powers  extend  no  further." 

Downing  vs.  Road  Co.,  40  N.  H.  230;  1  Cumming,  Cas. 

Priv.  Corp.  148;  Weckler  vs.  Bank,  42  Md.  581. 


240  INDUSTRIAL     CORPORATIONS 

CHAPTER    XIX. 

INCORPORATION  OF  COMPANIES 

§  188.     Who  May  Become  Incorporators. 

The  charter  of  a  corporation  being  a  contract,  it  is  lilce 
any  other  contract.  The  parties  to  it  must  be  sui  juris  and 
competent  to  enter  into  a  contract. 

In  re  Globe  Mut.  Ben.  Assn.,  63  Hun.  263. 

Corporations  are  generally  composed  of  natural  persons 
in  their  natural  capacity,  but  they  may  be  composed  of  persons 
in  their  political  and  artificial  capacity  as  other  corporations. 

Regent's  University  of  Maryland  vs.  Williams,  9  Gill. 

&  J.  (Md.)  365,  393. 

§  189.     Number  of  Corporations. 

At  the  Roman  law  "three  form  a  corporation." 
Sharswood's  Blackstone,  vol.  1,  note  B,  p.  468. 

The  statutes  of  the  States  require  a  certain  number,  some 
more,  some  less  as  a  minimum  number.  The  maximum  may 
be  any  number  above  that  required  by  statute,  but  no  less 
will  be  sufficient  to  bring  the  corporation  into  existence. 

Montgomery  vs.  Forbes,  148  Mass.  249;  19  N.  E.  342; 

1  Gumming,  Cas.  Priv.  Corp.  69;  Broderip  vs.  Salomon, 

L.  R.  2  Ch.  323;  State  vs.  Critchett,  37  Minn.  13;  32  N. 

W.  787. 

The  incorporators  must  be  bona  fide  people  and  not  dum- 
mies of  straw. 

•     Broderic  vs.  Salomon,  L.  R.  2  Ch.  323. 

Tt  is  within  the  legislative  power  to  create  one  person 
into  a  corporation,  but  that  it  seldom  does.  It  must  be  clear 
from  the  terms  of  the  act  that  such  is  its  intention. 

Penobscot  Boom  Corp.  vs.  Lamson,  16  Me.  224;  Day  vs. 

Stetson,  8  Greenl.  (Me.)  365. 

Where  a  statute  declares  that  "any  number  of  persons" 


INCORPORATION     OF     COMPANIES  241 

may  form  a  corporation,  this  has  been   held  to  mean  more 
than  one. 

Louisville  Banking  Co.  vs.  Eisenman,  94  Ky.  83;  21  S. 

W.  531,  1049;  Swift  vs.  Smith,  65  Md.  428;  5  Atl  534. 

One  person  may  buy  all  the  shares  of  a  corporation  and 
still  the  corporation  exist. 

State  vs.  International  Ins.  Co.,  88  Wis.  512;  60  N.  W. 
796. 

§  190.     Purpose  of  Corporation. 

In  the  Northern  Securities  decision,  speaking-  upon  the 
subject  of  the  unlawful  purpose  of  corporation,  the  federal 
court  said : — 

"Presumptively,  at  least,  no  charter  granted  by  State  is 
intended  by  the  State  to  have  that  effect  or  to  be  used  for 
such  a  purpose ;  and  in  the  present  instance  it  is  clear  that 
the  State  of  New  Jersey  did  not  intend  to  grant  a  charter  un- 
der cover  of  which,  an  object  denounced  by  Congress  as  un- 
lawful,— namely,  a-  combination  conferring  the  power  to  re- 
strain interstate  commerce,  might  be  formed  and  maintained, 
because  the  enabling  act  under  which  the  Securities  Company 
was  organized  expressly  declares  that  three  or  more  persons 
may  avail  themselves  of  the  provision  of  the  act  and  become 
a  'corporation  for  any  lawful  purpose.' '; 

"This  language  is  not  merely  perfunctory.  It  means  ob- 
viously that  whatever  powers  the  incorporators  saw  fit  to  as- 
sume they  must  hold  and  exercise  for  the  accomplishment  of 
lawful  objects." 

"The  words  in  question  operate,  therefore,  as  a  limitation 
upon  all  the  powers  enumerated  in  the  articles  of  association." 
United  States  vs.  The  Northern  Securities  Company, 
the  Northern  Pacific  Railway  Company,  the  Great 
Northern  Railway  Company,  James  J.  Hill,  William  P. 
Clough,  D.  Willis  James,  John  S.  Kennedy,  J.  Pierpont 
Morgan,  Robert  Bacon,  George  F.  Baker,  and  Daniel 
S.  Lamont. 

When  the  above   case  reached  the  supreme  court  of  the 
United  States,  the  supreme  court  said : — 

"By  the  express  words  of  the  Constitution,  Congress  has 
power  to  'regulate  commerce  with  foreign  nations,  and  among 
the  several  States,  and  with  the  Indian  tribes.' " 
17 


242  INDUSTRIAL     CORPORATIONS 

"No  State  can,  by  merely  creating  a  corporation,  or  in  any 
mode,  project  its  authority  into  other  States  and  across  the 
continent  so  as  to  prevent  Congress  from  exerting  the  powers 
it  possesses  under  the  Constitution  over  the  interstate  and 
international  commerce,  so  as  to  exempt  that  corporation  so 
engaged  in  interstate  commerce  from  obedience  to  any  rule 
lawfully  established  by  Congress  for  such  commerce." 

"So  far  as  the  Constitution  of  the  United  States  is  con- 
cerned, a  State  may  indeed  create  a  corporation,  define  its 
power,  prescribe  the  amount  of  its  stock  and  the  mode  in  which 
it  may  be  transferred.  It  may  even  authorize  one  of  its  cor- 
porations to  engage  in  commerce  of  every  kind, — domestic, 
interstate,  and  international.  The  regulation  or  control,  of 
purely  domestic  commerce  of  a  State  is,  of  course,  with  the 
State,  and  Congress  has  no  direct  power  over  it  so  long  as  what 
is  done  by  the  State  does  not  interfere  with  the  operations  of 
the  general  government  or  any  legal  enactment  of  Congress.  A 
State,  if  it  chooses  so  to  do,  may  even  submit  to  the  existence 
of  combinations  within  its  limits  that  restrain  its  international 
trade." 

§  191.     Purpose  Subservient  to  National  Will. 

"No  State  can  endow  any  of  its  corporations  or  any  com- 
bine of  its  citizens  with  authority  to  disobey  the  national  will 
as  manifest  in  legal  enactments  of  Congress.  To  depart  from 
it  because  of  the  circumstances  of  a  special  case,  or  because 
the  rule  in  its  operation  may  possibly  affect  the  interest  of 
business,  is  to  endanger  the  safety  and  integrity  of  our  insti- 
tutions and  make  the  Constitution  mean  not  what  it  says,  but 
what  interested  parties  wish  it  to  mean  at  a  particular  time 
and  under  particular  circumstances.  The  supremacy  of  the 
law  is  the  foundation  rock  upon  which  our  Constitution  rests." 
See  Merger  Decision  Supra. 

§  192.    Purpose  of  the  Corporation. 

The  purpose  of  a  corporation  must  be  within  the  scope 
allowed  by  the  statute  under  which  the  corporation  is  formed. 
Generally  the  limitation  upon  the  formation  of  a  corporation 
is  that  it  must  be  for  a  "lawful  purpose,"  but  the  question  is 
not  whether  it  is  lawful,  but  is  whether  it  is  allowed  or  au- 
thorized by  statute. 

State  vs.  International  Inv.  Co.,  88  Wis.  512;  60  N.  W. 
796. 


INCORPORATION     OF     COMPANIES  243 

Most  of  the  statutes  have  a  general  clause,  for  instance, 
the  Wisconsin  statute  contains  the  clause,  after  reciting  spe- 
cifically what  may  be  the  subject  of  incorporation,  "or  for  any 
lawful  business  or  purpose  whatever." 

In  the  State  of  Missouri  we  find  the  following  language: — 
"For  any  other  purpose  intended  for  pecuniary  profit  or 
gain  not  otherwise  specifically  provided  for,  and  not  incon- 
sistent with  the  constitution  and  laws  of  this  State." 

Under  the  last  clause  it  was  held  in  the  State  of  Missouri 
that    corporations    could   be    formed    according   to    the    plain 
meaning  and  language  expressed,  and  that  the  specific  sug- 
gestions preceding  the  general  clause  ought  in  no  wise  limit  it. 
State  vs.  Corkins,  123  Mo.  56 ;  27  S.  W.  363. 

Under  a  statute  having  specific  clauses  and  using  the  lan- 
guage therefor  of  "other  industrial  pursuits,"  it  was  held  that 
a  corporation  might  be  formed  for  any  other  industrial  pur- 
suits. 

Wells,  Fargo  &  Co.  vs.  Northern  Pac.  R.  Co.,  23  Fed. 

469,  474. 

For   similar   constructions   of  statute,   see   York    Park 

Bldg.  Assn.  vs.  Barnes,  39  Neb.  834;  53  N.  W.  440; 

National  Bank  vs.  Texas  Inv.  Co.,  74  Tex.  421;  12  S. 

W.  101 ;  Brown  vs.  Corbin,  40  Minn.  508;  42  N.  W.  481. 

W'hen  a  corporation  is  formed  for  the  purpose  of  forming 
a  trust  in  restraint  of  trade  and  it  is  clear  that  it  intends  to 
create  a  monopoly,  it  will  be  held  illegal,  and  upon  quo  ivar- 
ranto  by  the  State,  will  be  ousted  from  the  exercise  of  its 
corporate  franchise. 

People  vs.  North  River  Sugar-Refining  Co.,  121  N.  Y. 
587;  24  N.  E.  834;  Richardson  vs.  Buhl,  77  Mich.  632: 
43  N.  W.  1102;  State  vs.  Standard  Oil  Co.,  49  Ohio  St. 
137;  30  N.  E.  279;  People  vs.  Chicago  Gas  Trust  Co., 
130  111.  268;  22  N.  E.  798;  State  vs.  Nebraska  Distilling 
Co.,  29  Neb.  700;  46  N.  W.  155 

§  193.     Name  of  Corporation. 

A  corporation  must  have  a  name.  It  is  one  of  the  essen- 
tials of  its  being.  However  the  name  of  a  corporation  may 


244  INDUSTRIAL     CORPORATIONS 

be  any  name  that  the  corporators  see  fit  to  christen  it.  Some 
of  the  statutes  require  that  the  beginning  and  ending  of  a 
name  be  begun  and  ended  with  certain  words,  as  the  word, 
"the"  for  the  beginning,  and  ending  with  "corporation"  and 
in  so  far  is  a  limitation  upon  the  particular. 

Conservators  of  the  River  Tone  vs.  Ash,  10  Barn.  &  Co. 

349;  1  dimming,  Cas.  Priv.  Corp.  23;  Mariot  vs.  Mas- 

cal,  And.  206. 

"A  corporation  is  a  body  politic,  consisting  of  material 
bodies,  which,  joined  together,  must  have  a  name  to  do  things 
which  concern  the  corporation,  or  else  it  is  no  corporation." 

Conservators  of  the  River  Tone  vs.  Ash,  supra. 

"The  names  of  corporations  are  given  of  necessity,  for  the 
name  is,  as  it  were,  the  very  being  of  the  constitution ;  for, 
though  it  is  the  will  of  the  king  that  erects  them,  yet  the 
name  is  the  knot  of  their  combination,  without  which  they 
could  not  perform  their  corporate  acts;  for  it  is  nobody  to 
plead  and  be  impleaded,  to  take  and  give,  until  it  hath  gotten 
a  name." 

2  Bac.  Abr.  tit.  "Corporations,"  c.  1. 

"The  identity  of  name  is  the  principal  means  for  effecting 
that  perpetuity  of  succession  with  members  frequently  chang- 
ing, which  is  an  important  purpose  of  incorporation." 
Reg.  vs.  Registrar,  10  Q.  B.  839. 

A  corporation  has  the  right  to  the  use  of  a  name  exclu- 
sively. It  had  this  right  at  common  law  and  is  protected  by 
some  of  the  statutes  to  that  extent. 

"The  name  of  a  corporation  is  a  necessary  element  of  its 
existence,  and,  aside  from  any  statute,  the  right  to  its  ex- 
clusive use  will  be  protected  upon  the  same  principles  that 
persons  are  protected  in  the  use  of  trade-marks." 

State  vs.  McGraph,  92  Mo.  355 ;  5  S.  W.  29;  Newby  vs. 

Railway  Co.,  Deady,  609  Fed.  Cas.  No.  10,144;  Holmes, 

Booth  &  Haydens  vs.  Holmes,  Booth  &  Atwood  Mfg. 

Co.,  37  Com.  278 ;  see  note  to  R.  W.  Rogers  Co.  vs.  Wm. 

Rogers  Mfg.  Co.,  17  C.  C.  A.  579-591 ;  70  Fed.  1017. 

However,  a  corporation  may  be  known  by  several  names. 
Society  for  Propagating  the  Gospel  vs.  Young,  2  N.  H. 
310. 


INCORPORATION     OF     COMPANIES  245 

Every  corporation  has  the  right  to  change  its  name.  This 
must  be  done,  however,  by  and  through  legislative  authority, 
and  the  statute  must  be  complied  with.  It  comes  in  the  way 
of  an  amendment.  However,  in  the  State  of  New  York  the 
law  provides  that  the  court  may  grant  an  order  to  the  cor- 
poration to  change  its  name  if  "there  is  no  reasonable  objec- 
tion." 

In  re  United  States  Mercantile  Reporting  &  Collecting 
Agency,  115  N.  Y.  176;  21  N.  E.  1034. 

The  change  of  the  name  of  a  corporation  does  not  affect 
the  property  rights  of  the  corporation  in  any  manner,  but 
leaves  it  with  the  same  identity  except  the  name  as  it  was 
theretofore. 

Girard  vs.  Philadelphia,  7  Wall  1. 

If  a  corporation  in  making  a  contract  should  use  a  dif- 
ferent name  than  its  true  name,  this  would  not  vitiate  the  in- 
strument, as  the  corporation  would  be  allowed  to  prove  that 
the  contract  was  made  for  it  and  would  be  entitled  to  re- 
cover, or  vice  versa ;  the  opposite  party  would  be  entitled  to 
show  that  the  contract  was  made  for  the  corporation  and  be 
entitled  to  recover  from  it,  parol  evidence  being  admissible  in 
such  cases  to  identify  the  corporation. 

Hager's  Town  Turnpike  Road  Co.  vs.  Creeger,  5  Har. 
&  J.  (Mel)  122;  President,  etc.,  of  Berks  &  Dauphin 
Turnpike  Road  vs.  Myers,  6  Serg.  &  R.  12 ;  Mount  Pala- 
tine Academy  vs.  Kleinschnitz,  28  111.  133;  Medway  Col- 
lar Manufactory  vs.  Adams,  10  Mass.  360;  Commercial 
Bank  vs.  French,  21  Pick.  (Mass.)  486;  New  York  In- 
stitution for  the  Blind  vs.  How's  Ex'rs.  10  N.  Y.  84; 
Societv  for  Propagating  the  Gospel  vs.  Young,  2  N.  H. 
310;  1  Thomp.  Corp.  294,  295. 

§  194.     Domicil. 

It  has  been  held  that  a  corporation  has  no  legal  existence 
beyond  the  boundaries  of  the   State   that   created   it.     This 
question    arises    in    determining    the    jurisdiction    of    federal 
courts,  and  it  is  there  held  that  a  corporation, — 
"is  to  be  regarded  as  if  it  were  a  citizen  of  the  State  where 


246  INDUSTRIAL      CORPOR. \TIOXS 

it  was  created  and  no  averment  or  proof  of  the  citizenship  of 
its  members  elsewhere  will  be  permitted.  There  is  a  pre- 
sumption of  law  which  is  conclusive." 

Baltimore  &  O.  R.  Co.  vs.  Harris,  12  Wall  65 ;  1  Gum- 
ming Cas.  Priv.  Corp.  46;  Ohio  &  M.  R.  Co.  vs.  Wheeler, 
1  Black  297;  Louisville,  C.  &  C.  R.  Co.  vs.  Letson,  2 
How  497;  Shaw  vs.  Alining  Co.,  145  U.  S.  444;  12  Sup. 
Ct.  935;  2  Gumming  Cas.  Priv.  Corp.;  5  W.  D.  Smith, 
Cas.  Corp.  15 ;  13  Shcp.  Cas.  Corp.  55 ;  note  to  St.  Lours, 
I.  M.  &  S.  Ry.  Co.  vs.  Newcom,  6  C.  C.  A.  174;  56  Fed. 
951  ;  Bank  of  V.  S.  vs.  Devcaux,  5  Cranch  61  ;  Marshall 
vs.  Railroad  Co.,  16  How.  314,  327. 

The  provision  of  the  Constitution  giving  rise  to  the  right 
of  citizens  to  bring  action  in  the  federal  court,  is  as  follows : — 

"The  judicial  power  shall  extend  to  all  cases  in  law  and 
equity  arising  under  the  Constitution  or  laws  of  the  United 
States,  and  treaties  made  or  which  shall  be  made  under  their 
authority,  ...  to  all  cases  .  .  .  between  a  State  and 
citizens  of  another  State,  .  .  .  between  citizens  of  differ- 
ent States ;  .  .  .  between  citizens  of  the  same  State  claim- 
ing lands  under  grants  of  different  States,  and  between  a 
State  or  the  citizens  thereof  and  foreign  States,  citizens  or 
subjects." 

Constitution  of  U.  S.,  Art.  3,  Sec.  2. 

In  order  that  an  action  may  be  brought  under  this  pro- 
vision of  the  Constitution  and  the  jurisdiction  of  the  court 
sustained,  it  must  appear  somewhere  in  the  pleading  that  the 
corporation  was  created  by  a  certain  State  where  the  juris- 
diction depends  upon  diverse  citizenship. 
Muller  vs.  Dows,  94  U.  S.  444. 

The  pleadings  must  show  by  direct  allegation  that  the  cor- 
poration was  created  by  the  laws  of  the  foreign  State. 
Lafayette  Ins.  Co.  vs.  French,  18  How.  404. 

"A  corporation  created  by  and  organized  under  the  laws 
of  a  particular  State,  and  having  its  principal  office  there,  is, 
under  the  constitution  and  laws,  for  the  purpose  of  suing  and 
being  sued,  a  citizen  of  that  State.  .  .  .  By  doing  busi- 
ness away  from  their  legal  residence,  they  do  not  change  their 
citizenship,  but  simply  extend  the  field  of  their  operations. 
They  reside  at  home,  but  do  business  abroad." 


INCORPORATION     OF     COMPANIES  247 

Baltimore  &  O.  R.  Co.  vs.  Koontz,  104  U.  S.  5,  11,  12; 
Shaw  vs.  Mining  Co.,  145  U.  S.  444;  12  Sup.  Ct.  935;  2 
Gumming  Cas.  Priv.  Corp.  5. 

States  have  the  power  to  incorporate  corporations  of 
other  States,  but  in  so  doing,  they  do  not  join  the  other  State 
in  creating  a  corporation.  Each  State  creates  a  separate  and 
distinct  corporation  in  and  of  itself. 

"It  is  entirely  competent  for  the  State,  by  its  legislation, 
to  determine  the  mode  of  creating  corporations  within  its 
limits ;  and  if  it  sees  fit  to  declare  that  a  foreign  corporation 
may  become  a  corporation  of  the  State  by  building  a  railroad 
therein,  and  filing  a  copy  of  its  Articles  of  Incorporation  with 
the  secretary  of  state,  I  have  no  doubt  that  compliance  with 
these  terms  constitutes  the  foreign  corporation  a  domestic 
corporation  with  respect  to  all  its  transactions  within  such 
State." 

Stout  vs.  Railroad  Co.,  8  Fed.  794;  1   dimming  Cas. 

Priv.  Corp.  61 ;  see  Baltimore  &  O.  R.  Co.  vs.  Gallahue's 

Admrs.,   12  Grat   (Va.)   655 ;  Louisville  Trust   Co.  vs. 

Louisville  N.  A.  &  C.  R.  Co.,  75  Fed.  433. 

The  reason  of  this  rule,  it  is  said,  is  that  no  State  can 
pass  any  law  that  will  have  any  extra  territorial  force,  that  is. 
it  has  no  force  beyond  the  bounds  of  the  State  that  enacted  it. 
In  Missouri  Pac.  Ry.  Co.  vs.  Meeh,  69  Fed.  753,  it  was  said: — 

"At  this  day  it  must  be  regarded  as  settled  beyond  doubt 
or  controversy  that  two  States  of  this  L'nion  can  not  by  their 
joint  action  create  a  corporation  which  will  be  regarded  as  a 
single  corporate  entity,  and,  for  jurisdictional  purposes,  a 
citizen  of  each  State  which  joins  in  creating  it.  One  State 
may  create  a.  corporation  of  a  given  name,  and  the  Legislature 
of  an  adjoining  State  may  declare  that  the  same  legal  entity 
shall  be  or  become  a  corporation  of  that  State  as  well,  and 
be  entitled  to  exercise  within  its  borders,  by  the  same  board 
of  directors  or  officers,  all  of  its  corporate  functions.  Never- 
theless, the  result  of  such  legislation  is  not  to  create  a  single 
corporation,  but  two  corporations  of  the  same  name,  having 
a  different  paternity." 

In  Chicago  and  N.  W.  R.  Co.  vs.  Auditor,  53  Mich.  91, 
18  N.  W.  586,  Judge  Cooley  said  :— 

"It  is  impossible  to  conceive  of  one  joint  act  performed 


248  INDUSTRIAL     CORPORATIONS 

simultaneously  by  two  sovereign  States,  which  shall  bring  a 
single  corporation  into  being,  except  it  be  by  compact  or  treaty. 
There  may  be  separate  consent  given  for  the  consolidation 
of  corporations  separately  created,  but  when  the  two  unite, 
they  severally  bring  to  the  new  entity  the  powers  and  privi- 
leges already  possessed,  and  the  consolidated  company  simply 
exercises  in  each  jurisdiction  the  powers  the  corporation  there 
chartered  had  possessed,  and  succeeds  there  to  its  privileges." 

In  Quincy  Railroad  Bridge  Co.  vs.  Adams  Co.,  88  111.  615, 
619,  it  is  said:  Two  States, — 

"have  no  power  to  unite  in  passing  any  legislative  act.  It  is 
impossible  in  the  very  nature  of  their  organization,  that  they 
can  do  so.  They  can  not  so  fuse  themselves  into  a  single 
sovereignty,  and,  as  such,  create  a  body  politic  which  shall  be 
a  corporation  of  the  two  States,  without  being  a  corporation 
of  each  State  or  of  either  State." 

Ohio  &  M.  R.  Co.  vs.  Wheeler,  1  Black  286;  Missouri 
Pac.  Ry.  Co.  vs.  Meeh,  69  Fed.  753;  16  C.  C.  A.  510; 
Railway  Co.  vs.  Whitton's  Admr.,  13  Well  270;  New- 
port &  C.  Bridge  Co.  vs.  Wooley,  78  Ky.  523 ;  Fitzgerald 
vs.  Missouri  Pac.  Ry.  Co.,  45  Fed.  812;  Muller  vs.  Dows, 
94  U.  S.  444;  1  Gumming  Cas.  Priv.  Corp.  53;  Nashua 
&  L.  R.  Corp.  vs.  Boston  &  L.  R. -Corp.,  136  U.  S.  356; 
10  Sup.  Ct.  1004;  Chicago  &  N.  W.  R.  Co.  vs.  Auditor, 
53  Mich.  91;  18  N.  W.  586;  Racine  &  M.  R.  Co.  vs. 
Farmers'  Loan  &  Trust  Co.,  49  111.  331 ;  Rece  vs.  New- 
port News  &  M.  V.  Co.,  32  W.  Va.  164;  9  S.  E.  212; 
Bishop  vs.  Brainerd,  28  Conn.  289. 

§  195.     Who  Can  Question  Corporate  Existence. 

Persons  who  undertake  to  form  a  corporation  and  there- 
after transact  business  under  and  by  authority  of  the  corpora- 
tion or  supposed  corporation  and  hold  themselves  out  as  a 
corporation,  can  not  deny  or  will  not  be  heard  to  deny  that 
they  are  a  corporation,  neither  can  the  corporation  itself  dis- 
pute its  corporate  character  in  any  contract  into  which  it  has 
entered. 

Scheufler  vs.  Grand  Lodge,  45  Minn.  256;  47  N.  W. 
799;  Ferine  vs.  Grand  Lodge,  48  Minn.  82;  50  N.  W. 
1022;  Narragansett  Bank  vs.  Atlantic  Silk  Co.,  3  Mete. 
(Mass.)  287;  Farmer's  Loan  &  Trust  Co.  vs.  Toledo, 


INCORPORATION     OF     COMPANIES  249 

A.  A.  &  N.  M.  Ry  Co.,  67  Fed.  49;  Callencler  vs.  Rail- 
road Co.,  11  Ohio  St.  516;  Stewart  Paper  Mfg.  Co.  vs. 
Rau,  92  Ga.  511;  17  S.  E.  748;  Fitzpatrick  vs.  Rutter, 
160  111.  282;  43  N.  E.  392;  Hamilton  vs.  Railroad  Co. 
(Pa.  Sup.),  23  Atl.  53;  Bon  Aqua  Imp.  Co.  vs.  Standard 
Fire  Ins.  Co.,  34  W.  Va.  764;  12  S.  E.  771 ;  Independent 
Order  of  Mutual  Aid  vs.  Paine,  122  111.  625 ;  14  N.  E. 
42;  see  also  Dooley  vs.   Cheshire  Glass  Co.,  15  Gray 
(Mass.)  494;  1  dimming,  Cas.  Priv.  Corp.  418. 
Neither  can  third  persons  who  have  contracted  with  a  sup- 
posed corporation  be  heard  to  dispute  their  contract  on  the 
ground   that   the   corporation   is  not  a   legal   entity  as   it  is 
proposed  to  be. 

Methodist  Church  vs.  Pickett,  19  N.  Y.  482;  1  Gumming 
Cas.  Priv  Corp.  407;  Commercial  Bank  vs.  Pfeiffer,  108 
N.  Y.  242;  15  N.  E.  311;  Stoutimore  vs.  Clark,  70  Mo. 
471 ;  Minnesota  Gaslight  Economizer  Co.  vs.  Denslow, 
46  Minn.  171 ;  48  N.  W.  771 ;  Fresno  Canal  &  Irr.  Co. 
vs.  Warner,  72  Cal.  379;  14  Pac.  37;  Chubb  vs.  Upton, 
95  U.  S.  665;  Swartwout  vs.  Railroad  Co.,  24  Mich. 
390;  Stofflet  vs.  Strome,  101  Mich.  197;  59  N.  W/411; 
Booske  vs.  Ice  Co.,  24  Fla.  550;  5  South  247;  School 
Dist.  No.  61  vs.  Alderson,  6  Dak.  145;  41  N.  W.  466; 
Cahall  vs.  Association,  61  Ala.  232;  Douglass  County 
Com'rs  vs.  Bolles,  94  U.  S.  104;  Tarbell  vs.  Page,  24  111. 
46;  Winget  vs.  Association,  128  111.  67;  21  N.  E.  12; 
Columbia  Electric  Co.  vs.  Dixon,  46  Minn.  463;  49  N. 
W.  244;  Building  &  Loan  Assn.  vs.  Chamberlain,  4  S. 
D.  271;  56  N.  W.  897;  Butchers  &  D.  Bank  vs.  Mc- 
Donald, 130  Mass.  264;  1  Gumming  Cas.  Priv.  Corp. 
420;  Worchester  Medical  Inst.  vs.  Harding,  11  Cusli. 
(Mass.)  285;  Lehman  vs.  Warner,  61  Ala.  455;  Close 
vs.  Glenwood  Cemetery,  107  U.  S.  477 ;  2  Supp.  Ct.  267 ; 
Oregon ian  Ry.  Co.  vs.  Oregon  Ry.  &  Nav.  Co.,  23  Fed. 
232;  Granger's  Business  Assn.  vs.  Clark,  67  Cal.  634;  8 
Pac.  445 ;  South  Bay  Meadow  Dam  Co.  vs.  Gray,  30  Me. 
547;  Hassinger  vs.  Ammon,  160  Pa.  St.  245;  28  Atl. 
679;  Bank  of  Shasta  vs.  Boyd,  99  Cal.  604;  34  Pac.  337. 
Thus,  the  grantor  in  a  deed  in  favor  of  a  body  professing 
to  be  a  corporation  and  acting  as  such,  and  any  person  claim- 
ing under  him,  is  estopped  to  deny  the  corporate  existence 
of  the  grantee,  for  the  purpose  of  defeating  the  deed. 


250  INDUSTRIAL     CORPORATIONS 

Broadwell  vs.  Merritt  (Mo.  Sup.),  1  S.  W.  855;  Whit- 
ney vs.  Robinson,  53  Wis.  309;  10  N.  W.  512. 

And  the  execution  of  a  note  or  bond,  payable  to  a  body  as 

a  corporation  is  an   admission  by  the  maker  or  obligator  of 

its  corporate  existence,  which  will  estop  him  from  denying  it. 

Stoutimore  vs.  Clark,  70  Mo.  471  ;  Vater  vs.  Lewis,  36 

Ind.  288;  Brickley  vs.  Edwards,  131   Ind.  3 ;  30  N.  E. 

708;  John  vs.  Bank,  2  Blackf.  (Ind.) 367;  20  Am.  Dec. 

119;  School  Dist.  No.  61  vs.  Alderson,  6  Dak.  145;  41 

N.  W.  466;  Booske  vs.  Ice  Co.,  24  Fla.  550;  5  So.  247. 

In  Swartwout  vs.  Michigan  Air-Line  R.  Co.,  24  Mich.  390, 
Judge  Cooley  said  : — 

"Where  there  is  a  corporation  dc  facto,  with  no  want  of 
legislative  power  to  its  due  and  legal  existence,  when  it  is 
proceeding  in  the  performance  of  corporate  functions,  and  the 
persons  are  dealing  with  it  on  the  supposition  that  it  is  what 
it  professes  to  be,  and  the  questions  are  only  whether  there 
has  been  exact  regularity,  and  strict  compliance  with  the  pro- 
visions of  the  law  relating  to  corporations,  it  is  plainly  a 
dictate  alike  of  justice  and  public  policy  that,  in  controversies 
between  the  dc  facto  corporation  and  those  who  have  entered 
into  contract  relations  with  it,  as  corporators  or  otherwise, 
such  questions  could  not  be  suffered  to  be  raised." 

The  rule  thus  announced  by  Judge  Cooley  has  met  with 
approval  by  courts  of  other  States  on  other  grounds.  It  has 
been  held : — 

"The  rule  relating  to  corporations  dc  facto  is  not  founded 
upon  any  principles  of  estoppel,  as  is  sometimes  assumed,  but 
upon  the  broader  principles  of  common  justice  and  public 
policy.  It  would  be  unjust  and  intolerable  if,  under  such 
circumstances,  every  interloper  and  intruder  were  allowed 
thus  to  take  advantage  of  every  informality  or  irregularity 
of  organization." 

East  Norway  Lake  Church  vs.  Froislie,  37  Minn.  447; 

35  N.  W.  260;  Society  Perum  vs.  Cleveland,  43  Ohio  St. 

481 ;  3  N.  E.  357. 

In  passing  upon  this  proposition,  it  was  said  by  the  Su- 
preme Court  of  the  United  States: — 

"Where  a  shareholder  of  a  corporation  is  called  upon  to 
respond  to  a  liability  as  such,  and  where  a  party  has  con- 


INCORPORATION     OF     COMPANIES  251 

tracted  with  a  corporation  and  is  sued  upon  the  contract, 
neither  is  permitted  to  deny  the  existence  or  the  legal  validity 
of  such  corporation.  To  hold  otherwise  would  be  contrary 
to  the  plainest  principles  of  reason  and  of  good  faith,  and  in- 
volve a  mockery  of  justice.  Parties  must  take  the  conse- 
quences of  the  position  they  assume.  They  are  estopped  to 
deny  the  reality  of  the  state  of  things,  which  they  have  made 
appear  to  exist,  and  upon  which  others  have  been  led  to  rely. 
Sound  ethics  require  that  the  apparent,  in  its  effects  and  con- 
sequences, should  be  as  if  it  were  real,  and  the  law  properly 
so  regards  it." 

Casey  vs.  Galli,  94  U.  S.  673. 

"One  who  deals  with  a  corporation  as  existing  in  fact  is 
estopped  to  deny  as  against  the  corporation  that  it  has  been 
legally  organized." 

Close  vs.  Cemetery,  107  U.  S.  477. 

§  196.     Liability  of  Associates  as  Partners. 

Where  parties  doing  business  are  neither  de  jure  nor  dc 
facto  corporation  and  the  question  of  their  liability  arises, 
it  has  been  held  that  they  may  be  liable  as  partners. 

Eaton  vs.  Walker,  76  Mich.  579;  43  N.  W.  638;  Guckert 
vs.  Hacke,  159  Pa.  St.  303;  28  Atl.  249;  Empire  Mills 
vs.  Alston  Grocery  Co.,  15  (Tex.  App.)  200,  505 ;  1 
Shep.  Cas.  Corp.  64 ;  Johnson  vs.  Corser,  34  Minn.  355 : 
25  N.  W.  799;  Kaiser  vs.  Bank,  56  Iowa  104;  8  N.  W. 
772;  1  Shep.  Cas.  Corp.  268;  Pettis  vs.  Atkins,  60  111. 
454;  Bigelow  vs.  Gragory,  73  111.  197;  Whipple  vs. 
Parker,  29  Mich.  380;  Eliot  vs.  Himrod,  108  Pa.  St.  569; 
Garnett  vs.  Richardson,  35  Ark.  144;  Hill  vs.  Beach,  12 
N*.  J.  Eq.  31;  Abbott  vs.  Refining  Co.,  4  Neb.  416; 
Wecheelberg  vs.  Bank,  12  C.  C.  A.  56;  64  Fed.  90;  Cole- 
man  vs.  Coleman,  78  Ind.  346;  Martin  vs.  Fewell,  79 
Mo.  40;  1  Shep.  Cas.  Corp.  271;  Smith  vs.  Warden, 
86  Mo.  382;  Williams  vs.  Hewitt,  47  La.  Ann.  1076;  17 
So.  497;  Duke  vs.  Taylor,  37  Fla.  64;  19  So.  172. 

On  the  other  hand,  courts  of  equal  respectability  have  held 
that  the  remedy  in  such  cases  is  against  the  particular  per- 
sons transacting  the  business  as  agent  upon  the  breach  of  an 
implied  warrant  of  authority. 

Fay  vs.  Noble,  7  Cush.  (Mass.)  188;  1  Gumming  Cas. 
Pri'v.  Corp.  420. 


252  INDUSTRIAL     CORPORATIONS 

"By  proiessing  to  act  for  a  corporation  which  does  not 
exist,  they  put  themselves  in  the  position  of  a  person  who  pro- 
fesses to  act  as  the  agent  of  another  person  who  is  really  non- 
existent. Under  a  well-settled  rule  they  are  therefore  per- 
sonally bound  to  make  good  any  undertaking  which  they  as- 
sume in  that  character." 

1  Thomp.  Corp.  418,  citing  Medill  vs.  Collier,  16  Ohio 
St.  599;  Fay  vs.  Noble,  7  Cush.  (Mass.)  188;  1  Cum- 
ming  Cas.  Priv.  Corp.  420. 

§  197.     Powers  of  a  Corporation. 

The  corporation  at  the  present  day  has  become  such  a 
fashionable  mode  of  transacting  business,  that  many  of  the 
restrictions  that  were  supposed  to  exist  surrounding  its  opera- 
tions are  no  longer  barriers  to  its  progress  in  the  transaction 
of  business.  As  a  general  rule  and  as  stated  to  be  the  correct 
rule  was  the  one  laid  down  by  Blackburn,  Justice  in  Ashbury 
Ry.  Carriage  &  Iron  Co.  vs.  Riche,  L.  R.  9  Exch.  224;  2  dim- 
ming Cas.  Priv.  Corp.  34. 

"I  take  it  that  the  true  rule  of  law  is  that  a  corporation  at 
common  law  has,  as  an  incident  given  by  law,  the  same  power 
to  contract,  and  subject  to  the  same  restrictions,  as  a  natural 
person  has.  And  this  is  important  when  we  come  to  construe 
the  statutes  creating  a  corporation,  for  if  it  were  true  that  a 
corporation  at  common  law  has  a  capacity  to  contract  to  the 
extent  given  to  it  by  the  instrument  creating  it,  and  no  further, 
the  question  would  be,  does  the  statute  creating  the  corpora- 
tion by  express  provision  or  necessary  implication  show  an  in- 
tention in  the  Legislature  to  confer  upon  this  corporation 
capacity  to  make  the  contract?  But  if  a  body  corporate  has, 
as  incident  to  it,  a  general  capacity  to  contract,  the  question 
is,  Does  the  statute  creating  the  corporation  by  express  pro- 
vision or  necessary  implication  show  an  intention  in  the  Legis- 
lature to  prohibit,  and  so  avoid,  the  making  of  a  contract 
of  this  particular  kind?" 

However,  in  Thos.  vs.  West  Jersey  R.  Co.,  101  U.  S.  71, 
it  was  said : — 

"We  take  the  general  doctrine  to  be  in  this  country,  though 
there  may  be  exceptional  cases  and  some  authorities  to  the 
contrary,  that  the  powers  of  corporations  organized  under 
legislative  statutes  are  such,  and  such  only,  as  those  statutes 


INCORPORATION     OF     COMPANIES  253 

confer.  Conceding  the  rule  applicable  to  all  statute  that 
what  is  fairly  implied  is  as  much  granted  as  what  is  expressed, 
it  remains  that  the  charter  of  a  corporation  is  the  measure  of 
its  powers,  and  that  the  enumeration  of  these  powers  implies 
the  exclusion  of  all  others." 

Whatever  may  be  the  rules  laid  down  by  the  courts  in  the 
given  case,  it  is  quite  apparent  that  corporations  actually 
transact  business  on  every  line  that  individuals  do  and  make 
every  contract  that  individuals  are  able  to  make  and  consum- 
mate them  in  a  like  manner.  No  good  reason  is  perceived 
why  a  corporation  could  not  transact  any  business  that  an 
individual  can  so  far  as  their  capacity  to  do  business  is  con- 
cerned in  the  line  set  forth  and  set  out  by  their  charter. 
Where  would  the  injury  arise  in  any  contract  if  the  contract- 
ing parties  were  corporations  or  one  of  them  a  corporation, 
and  the  agents  of  such  corporation  and  the  other  contracting 
party  were  satisfied  with  the  contracts  thus  made  and  con- 
summated,— who  would  have  the  right  to  complain? 

Corporations  have  none  of  the  elements  of  sovereignty. 
St.  Louis  vs.  Weber,  44  Mo.  547. 

At  common  law  six  powers  were  incident  to  corporations. 
Rochester  Ins.  Co.  vs.  Martin,  13  Minn.  59;  White's 
Bank  vs.  Toledo  Ins.  Co.,  12  Ohio  St.  601. 

1.  To  have  perpetual  succession. 

2.  To  sue  and  be  sued  and  to  grant  and  receive  by  their 
corporate  name. 

3.  To  purchase  and  hold  lands  and  chattels. 

4.  To  have  a  common  seal. 

5.  To    make    by-laws   for   the   government   of    the    corpo- 
ration. 

6.  The  power  of  amotion  or  removal  of  member. 

Penobscot  Boom  Co.  vs.  Lampson,   16  Me.  24;  Sher- 
wood vs.  Am.  Bible  Soc.,  4  Abb.  Ct.  App.  227. 

The  legislatures  are  not  bound  by  the  rules  of  the  common 
law  in  the  formation  of  corporations.  They  can  create  a 
corporation  in  total  disregard  of  the  common  law,  but  powers 


254  INDUSTRIAL     CORPORATIONS 

thus  granted  must  depend  upon  the  enactment  of  the  legis- 
lature. 

Beaty  vs.  Mars  Ins.  Co.,  2  Jones  109;  Com.  of  Roads  vs. 

McPherson,  1   Spear  218;  Conro  vs.  Port  Henry  Iron 

Co.,  12  Barb.  27. 

The  method  thus  prescribed  by  the  Legislature  must  be 

strictly  pursued. 

Mathews  vs.  Spinker,  62  Mo.  329. 
A  corporation  has  all  the  rights  incident  to  the  right  of 

contract  within   the  provisions  of  its  charter,  can  make  any 

contract   within    the   object   of  its   creation,   and    deal    like   a 

natural  person. 

Binney's  Case,  2  Bland  142;  Reynolds  vs.  Comm'rs,  etc., 
5  Ohio  205 ;  McCartee  vs.  Orph.  Asy.  Soc.,  9  Cowen 
437;  Ketchum  vs.  Buffalo,  14  N.  Y.  356;  State  vs.  Madi- 
son, 7  Wis.  688;  Callaway,  etc.  Co.  vs.  Clark,  32  Mo. 
305 ;  Central  Gold  Min.  Co.  vs.  Platt,  3  Daly  263 ;  Page 
vs.  Heineberg,  40  Vt.  81  ;  Galena  vs.  Corevith,  48  111. 
423;  Strauss  vs.  Eagle  Ins.  Co.,  5  Ohio  St.  59;  Brough- 
ton  vs.  Manchester  Water-works 'Go.,  3  Barn  &  Aid.  1  ; 
Seibrecht  vs.  New  Orleans,  12  La.  496;  Brooklyn 
Gravel  Road  Co.  vs.  Slaughter,  33  Ind.  185;  Weckler 
vs.  First  Nat.  Bank,  42  Md.  581  ;  Goodrich  vs.  Detroit, 
12  Mich.  279 ;  Bateman  vs.  Mayor,  etc.  3  Hurl.  &  N.  322 ; 
Douglass  vs.  Virginia  City,  5  Nev.  147. 

The  United  States  is  a  body  politic  and  corporate. 

Middlesex  R.  R.  Co.  vs.  Boston  R.  R.  Co.,  115  Mass. 
347;  Pierce  vs.  Emery,  32  N.  H.  504;  Toledo  Bank  vs. 
Bond,  1  Ohio  St.  622;  United  States  vs.  Maurice,  2 
Brock  96;  Cotton  vs.  United  States,  11  How.  229. 

§   198.     Mode  of  Contracting. 

The'  corporation   contracts   precisely   as   a  natural   person 
does   (except  it  uses  its  own  name  and  signature),  and  it  is' 
not  limited  unless  there   is  a  limitation   in   its  charter  or  by 
expressed  provision  of  law. 

Harborough  vs.  Shordlow,  7  Mees.  &  W.  87;  2  Eng. 

Railw.  Cas.  253;  White  vs.   New  Orleans,   15   La.  An. 

667;   Head  vs.   Ins.   Co.   2  Cranch,   127;   Baltimore  vs. 

Reynolds,  20  Md.  1 ;  Zottmen  vs.  San  PVancisco,  20  Cal. 


INCOUPOUAT1ON     OF     COM  PAN  IKS  255 

390;  Pimento  vs.  San  Francisco,  21  id.  351;  Dladen  vs. 
Philadelphia,  60  Pa.  St.  464;  N.  Y.  etc.  R.  R.  Co.  vs. 
Mayor,  etc.,  1  Hilt.  562;  Lowe  vs.  London,  etc.  Railw. 
Co.,  14  Eng.  L.  &  Eq.  18;  MsSpedon  vs.  Mayor,  etc., 
20  How.  Pr.  395 ;  7  Bosw.  601  ;  Maher  vs.  City  of  Chi- 
cago, 38  111.  266;  Abbott  vs.  Herman,  7  Me.  ll8;.Abby 
vs.  Billups,  35  Miss.  618;  Frankfort  Bridge  Co.  vs.  City 
Frankfort,  18  B.  Mon.  41  ;  Gowan  Marble  Co.-  vs.  Tar- 
rant,  73  111.  608;  N.  Y.  etc.  R.  R.  Co.  vs.  Mayor,  etc.,  1 
Hilt.  562;  Silliman  vs.  Fredericksburg,  etc.  R.  R.  Co., 
27Gratt  119. 

Whenever  a  corporation  is  acting  within  the  purpose  of 
its  charter  it  may  enter  into  parol  contracts  by  and  through 
its  agents,  and  when  done  they  become  express  contracts 
of  the  corporation. 

Fanning  vs.  Gregoire,  16  How.  524;  Fleckner  vs.  Bank 

of  U.  S.,  8  Wheat.  338;  McCullough  vs.  Talladega  Ins. 

Co.,  46  Ala.  376;  Compare  Trustees,  etc.  vs.  Johnson, 

53  Ind.  273. 

When  an  officer  or  agent  is  acting-  in  the  usual  scope  of 
his  authority,  it  does  not  require  any  resolution  or  other  action 
on  the  part  of  the  corporation  to  enable  him  to  transact  its 
ordinary  business. 

Lime  Rock  Bank  vs.  Macomber,  29  Me.  564;  Eastman 
vs.  Coos  Bank,  1  N.  H.  23 ;  Consolidated  Bresby.  Soc. 
vs.  Staples,  23  Conn.  544. 

It  is  no  longer  necessary  in  the  ordinary  and  usual  con- 
tracts of  the  corporation  any  more  than  it  is  on  the  part  of 
the  natural  person  to  use  a  seal.  When  a  natural  person 
would  have  to  use  a  seal,  a  seal  would  also  have  to  be  used 
by  a  corporation. 

Bank  of  Columbia  vs.  Patterson,  7  Cranch  299 ;  Savings 
Bank  vs.  Davis,  8  Conn.  191 ;  New  Athens  vs.  Thomas, 
82  111.  259;  Watson  vs.  Bennett,  12  Barb.  196;  Hamilton 
vs.  New  Castle  R.  R.  Co.,  9  Ind.  359;  Peterson  vs. 
Mayor,  etc.,  of  N.  Y.  449;  Missouri  River,  etc.  R.  R. 
Co.  vs.  Comm'rs,  12  Kan.  482;  McCullough  vs  Talla- 
dega Ins.  Co.,  46  Ala.  376;  San  Antonio  vs.  Gould,  34 
Tex.  49 ;  Mauby  vs.  Long,  3  Lev.  107 ;  Wells  vs.  Mayor, 
etc.  Law  R.,  10  C.  P.  402 ;  Bank  of  U.  S.  vs.  Dandridge, 


256  INDUSTRIAL     CORPORATIONS 

12  Wheat.  64;  Austin  vs.  Guardians,  etc.,  Law  R.  9  C. 
P.  91. 

The   individual   members  of  a   corporation,   however,   can 

not  bind  the  corporation,  unless  specially  authorized  to  do  so. 

Soper  vs.  Buffalo,  etc.  R.  R.  Co.,  19  Barb.  310;  Ruby  vs. 

Abyssinian  Soc.,  15  Me.  306;  Regents  of  University  vs. 

Williams,  9  Gill.  &  J.  365. 

§  199.     Contracts  by  Agents  or  Power  of  Attorney. 

A  power  of  attorney  is  an  instrument  in  writing  by  virtue 
of  which  one  person  transacts  business  in  the  place  or  stead 
of  another  as  an  agent. 

In  Porter  vs.  Hermann,  8  Cal.  620,  Field,  J.,  said : — 

"All  attorneys  in  fact  are  agents,  but  all  agents  are  not 
necessarily  attorneys  in  fact ;  agent  is  the  general  term,  which 
includes  brokers,  factors,  consignees,  shipmasters,  and  all 
classes  of  agents.  By  attorneys  in  fact  are  meant  persons  who 
are  acting  under  a  special  power  created  by  deed.  It  is  true, 
in  loose  language,  the  terms  are  applied  to  denote  all  agents 
employed  in  any  kind  of  business  except  attorneys-at-law,  but 
in  legal  language  they  denote  persons  having  a  special  au- 
thority by  a  deed." 

Hunt.  vs.  Rousmainer,  8  Wheat  (U.  S.)  174. 

Powers  of  attorney  receive  a  strict  construction. 

"All  powers  of  attorney  receive  a  strict  interpretation,  and 
the  authority  is  never  extended  by  intendment,  or  construc- 
tion, beyond  that  which  is  given  in  terms,  or  is  absolutely  nec- 
essary for  carrying  the  authority  into'  effect,  and  that  authority 
must  be  strictly  pursued." 

Rossiter  vs.  Rossiter,  8  Wend.  (N.  Y.)  494;  Brantley  vs. 
Insurance  Co.,  53  Ala.  554;  Bliss  vs.  Clark,  16  Grav 
(Mass.)  60. 

This  rule  was  applied  in  : — 

Rice  vs.  Tavernier,  8  Minn.  248;  Greve  vs.  Coffin,  14 
Minn.  345 ;  Berkey  vs.  Judd,  22  Minn.  287. 

A  general  power  of  attorney  to  transfer  stock  authorizes 
an  agent  to  sign  the  stockholder's  name  to  a  transfer,  but  not 
to  have  a  transfer  made  to  himself. 

Taft  vs.  Presidio,  etc.  Co.,  84  Cal.  131  (1890)  ;  Revers- 
ing, 22  Pac.  Rep.  485  (1889). 


INCORPORATION     OF     COMPANIES  257 

The  corporation  is  liable  if  they  allow  the  transfer  to  the 
attorney  in  fact. 

Quay  vs.  Presidio,  82  Cal.  1. 

Corporations  may  appoint  agents  Dy  directors'  votes  or 
by  implication,  if  there  is  nothing  in  the  charter  or  by-laws 
to  the  contrary. 

Power  of  attorney  may  be  by  parol  or  in  writing,  as  oral 
or  written  powers  are  equally  parol  authority,  such  agents 
may  sign  their  principal's  name  without  a  seal.  An  agent  'may 
only  be  clothed  with  oral  authority,  still  he  may  bind  his 
principal  to  written  instruments. 

Letters  or  power  of  attorney  are  to  be  strictly  construed, 
as  where  general  terms  are  used  in  relation  to  a  particular 
subject,  such  terms  must  be  construed  to  be  subordinate  and 
refer  to  that  particular  subject  and  not  enlarge  upon  it,  not 
encompass,  nor  include  other  subjects. 

The  power  necessarily  includes  such  means  and  authority 
as  will  enable  the  agent  to  carry  the  power  into  effect.  Such 
an  agent  must  sign  the  name  of  his  principal,  and  then  add 
his  own  name  afterward  together  with  the  words  "his  agent," 
"his  attorney"  or  "his  attorney  in  act." 

Powers  of  attorney  may  range  from  an  oral  authority  to 
the  most  solemn  general  power  of  attorney,  under  seal  to  ex- 
ecute sealed  instruments,  such  as  deeds,  mortgages  and  the 
like. 

Corporation  proxys  are  simply  powers  of  attorney,  where 
an  agent  is  authorized  to  act  in  another's  stead,  with  or 
without  instruments.  A  proxy  may  contain  a  clause  of  sub- 
stitution, and  in  such  case  the  agent  may  appoint  or  dele- 
gate his  power  to  another  to  act  or  vote  in  his  stead. 

§  200.     Elements  of  Power  of  Attorney. 

1.  The  names  of  both  the  principal  and  the  attorney  in  fact. 

2.  The  duty  imposed  and  mode  of  exercising  'it. 

3.  Whether  the  power  is  general  or  special  and  limitations. 

4.  The  power  of  substitution  and  revocation. 

5.  Ratification  and  confirmation. 

18 


258  INDUSTRIAL     CORPORATIONS 

6.  Signatures  of  principal  and  agents. 

7.  Attestation   and   acknowledgment   of  the   power   is   to 
confer  authority  to  make  instruments  under  seal,  otherwise 
not,  signatures  are  sufficient. 

8.  Recording  of  power  of  attorney  confers  authority  to 
execute  sealed  instruments. 

For  power  of  attorney  for  corporations,  see — 

Osborn  vs.  Bank  U.  S.,  9  Wheat.  (U.  S.)  738;  Bank  of 
U.  S.  vs.  Dandridge,  12  Wheat.  (U.  S.)  64;  Clark  vs. 
Corp.  of  Washington,  12  Wheat.  (U.  S.)  400;  Bank  of 
Metropolis  vs.  Guttschlick,  14  Pet.  (U.  S.)  19;  Fleck- 
ner  vs.  Bank  of  U.  S.,  8  Wheat.  (U.  S.)  338;  Bank  of 
Columbia  vs.  Patterson,  7  Cranch  (U.  S.)  229;  Essex 
Turnpike  Corp.  vs.  Collins,  8  Mass.  202 ;  Bristol  Sav- 
ings Bank  vs.  Keavy,  128  Mass.  298;  Hutch  ins  vs. 
Byrnes,  9  Gray  (Mass.)  367;  Pusey  vs.  N.  J.  W.  L.  R. 
Co.,  14  Abb.  Pr.  N.  S.  (N.  Y.)  434;  Middleton  vs.  R. 
Co.,  43  How.  Pr.  (N.  Y.)  481 ;  Danforth  vs.  Schoharie, 
etc.  Co.,  12  Johns  (N.  Y.)  227;  Peterson  vs.  Mayor  of 
N.  Y.,  17  N.  Y.  449;  Darst  vs.  Gale,  83  111.  136;  Rock- 
ford,  etc.  R.  Co.  vs.  Wilcox,  66  111.  417;  Gowan  Marble 
Co.  vs.  Tarrant,  73  111.  608;  Adams  Expr.  Co.  vs.  Schles- 
singer,  75  Pa.  St.  246;  Kelsey  vs.  Nat.  Bank,  69  Pa.  St. 
426;  Atchinson,  etc.  R.  Co.  vs.  Reecher,  24  Kan.  228; 
Flint  vs.  Clinton  Co.,  12  N.  H.  430;  Goodwin  vs.  Union 
Screw  Co.,  34  N.  H.  378;  Kiley  vs.  Forsee,  57  Mo.  390; 
Southgate  vs.  Atlantic,  etc.  R.  Co.,  61  Mo.  89;  Union 
Min.  Co.  vs.  Rocky  Mt.  Nat.  Bank,  2  Colo,  248;  Smiley 
vs.  Mayor  of  Chattanooga,  6  Heisk  (Tenn.)  604;  Steel 
vs.  Solid  Silver,  etc.  Mining  Co.,  13  Nev.  486;  Stanwood 
vs.  Laughlin,  73  Me.  112;  Lime  R.  Bank  vs.  Macomber, 
29  Me.  564 ;  Warren  vs.  Ocean  Ins.  Co.,  16  Me.  439  s.  c. ; 
33  Am.  Dec.  674;  Swazy  vs.  Union  Mfg.  Co.,  42  Conn. 
556;  Vicksburg,  etc  R.  Co.  vs.  Ragdale,  54  Miss.  200; 
Legrand  vs.  Hampden  S.  College,  5  Munf.  (Va.)  324; 
The  Banks  vs.  Poitiaux,  3  Rand.  (Va.)  143  s.  c. ;  15  Am. 
Dec.  706;  Union  Bank  vs.  Ridgeley,  1  Harr.  &  G.  (Md.) 
413;  Elysville  M.  Co.  vs.  Okisko  Co.,  1  Md.  Ch.  392; 
Ross  vs.  City  of  Madison,  1  Carter  (Ind.)  281 ;  Garvey 
vs.  Colcock,  1  Nott.  McC.  (S.  Car)  231;  Buncombe 
Turnpike  Co.  vs.  McCarson,  1  Dev.  &  B.  (S.  Car)  306; 
Petrie  vs.  Wright,  6  S.  &.  M.  (Miss.)  647;  Baptist 


INCORPORATION     OF     COMPANIES  259 

Church  vs.  iMulford,  3  Halst.  (N.  J.)  182;  Merrick  vs. 
Burlington  Co.,  11  Iowa  75;  Waller  vs.  Bank  of  Ivy., 
3  J.  J.  Marsh  (Ky.)  201 ;  Lee  vs.  Flemingsburg,  7  Dana 
(Ky.)  28;  Muir  vs.  Canal  Co.,  8  Dana.  (Ky.)  161 ;  Poult- 
ney  vs.  Wells,  1  Aiken  (Vt.)  180;  Sheldon  vs.  Fairfax, 
21  Vt.  102;  San  Antonio  vs.  Lewis,  9  Tex.  69. 

The  authority  of  a  corporation  or  its  officers  to  issue  its 
promissory  note  need  not  be  expressly  given  by  its  by-laws, 
or  by  formal  resolution  of  the  board  of  directors.  Such  au- 
thority can  be  inferred  from  the  acquiescence  of  the  corpo- 
ration in,  or  the  recognition  by  it,  of  the  acts  of  its  accredited 
officers  in  the  regular  course  of  its  authorized  business. 

First  Nat.  Bank  vs.  North  Miss.  Coal,  etc.  Co.,  86  Mo. 
125. 

The  authority  to  appoint  an  agent  need  not  be  specific- 
ally mentioned  in  the  charter. 

Kitchen  vs.  Cape  Girardeau  R.  Co.,  59  Mo.  514;  Old 
Colony  R.  Co.  vs.  Evans,  6  Gray  (Mass.)  25  s.  c. ;  66 
Am.  Dec.  394. 

The  appointment  of  an  agent  by  or  for  a  corporation, 
as  by  a  natural  person,  may  be  implied  from  a  confirmation 
of  his  acts,  or  an  acceptance  of  his  services  without  objection  ; 
and  after  such  confirmation  or  acceptance,  the  corporation 
can  not  evade  payment  for  his  services  by  denying  the  va- 
lidity of  his  appointment. 

Ala.  Gr.  So.  R.  Co.  vs.  Hill,  76  Ala.  303 ;  Reynolds  vs. 

Collins,  78  Ala.  94. 

A  contract  between  two  corporations  will  not  be  void  for 
lack  of  seals;  but  a  court  of  equity  will,  if  necessary,  compel 
the  parties  to  affix  their  seals. 

Missouri,  etc.  R.  Co.  vs.  Miami  Co.,  12  Kan.  482. 

§  201.     Construction  of  Contracts. 

Contracts  made  by  the  officers  of  a  corporation  will  be 
presumed  to  have  been  made  in  pursuance  of  authority  from 
the  corporation. 

Dean  vs.  Lamotte  Lead  Co.,  59  Mo.  523. 


260  INDUSTRIAL     CORPORATIONS 

When  a  corporation  changes  its.  name,  but  continues  in 
the  same  general  business  with  the  same  officers,  it  is  respon- 
sible under  the  new  name  for  all  its  previous  debts. 
Dean  vs.  Lamotte  Lead  Co.,  59  Mo.  523. 

§  202.     Power  to  Sue. 

A  corporation  can  sue  in  its  corporate  name  only,  and 
whether  the  contract  was  made  by  an  agent  makes  no  dif- 
ference ;  the  action  must  be  brought  in  the  name  of  the  cor- 
poration, and  even  if  the  contract  is  made  in  the  name  of  one 
of  the  officers,  still  the  corporation  must  sue,  and  after  change 
of  the  name,  it  must  sue  in  the  new  name. 

Curtiss  vs'.  Murry,  26  Cal.  633 ;  Norton  vs.  Hodges,  100 
Mass.  241;  Bradley  vs.  Richardson,  2  Blatchf.  343; 
Porter  vs.  Nekervis,  4  Rand  359;  Dark  vs.  Houston,  22 
Ga.  506 ;  Mauney  vs.  Motz,  4  Fred.  Eq.  195 ;  Garland  vs. 
Reynolds,  20  Me.  45 ;  Commercial  Bank  vs.  French,  21 
Pick.  486;  Myers  vs.  Machado,  6  Abb.  Pr.  198;  Bundy 
vs.  Birdsall,  29  Barb.  31 ;  Leon:ardsville  Bank  vs'.  Will- 
ard,  25  N.  Y.  574;  Lowenthall  vs.  Wiseman,  56  Barb. 
490';  Brittain  vs.  Newland,  2  Dev.  &  B.  Eq.  363 ;  Warren 
Academy  vs.  Starrett,  15  Me.  443;  Haynes  vs.  Coving- 
ton,  13  Smedes  &  M.  408;  Timms  vs.  Williams,  3  Ad. 
&  E.  N.  S.  413;  Madison  College  vs.  Burke,  6  Ala.  494; 
Gould  vs.  Sub-district  No.  3,  etc.,  7  Minn.  203 ;  Mayor, 
etc.  of  Colchester  vs.  Seaber,  3  Burr.  1866;  Eaton,  etc. 
R.  R.  Co-,  vs.  Hunt,  20  Ind.  457;  Racine  County  Bank 
vs.  Ayers,  12  Wis.  512;  Trustees,  etc.  vs.  Schwagler,  37 
Iowa  577. 

BONDS. 

§  203.     One  Character  of  Corporate  Contracts. 

In  the  absence  of  the  restrictions  in  the  charter  of  the  cor- 
poration, if  there  be  any,  a  corporation  has  the  power-  to  issue 
bonds.  It  is  germane  to  its  existence.  They  may  create  a 
debt  in  any  manner  that  they  see  fit  if  this  is  within  the 
purpose  or  scope  of  their  business. 

"A  bond  is  merely  an  obligation  under  seal.  A  corporation 
having  the  capacity  to  sue  and  be  sued,  the  right  to  make 
contracts,  under  which  they  may  incur  debts,  and  the  right 
to  make  and  use.  a  common  seal,  a  contract  under  seal  is  not 


INCORPORATION     OF     COMPANIES  261 

only  within  the  scope  of  its  powers,  but  was  originally  the 
usual,  and  peculiarly  appropriate  form  of  corporate  agree- 
ment." 

Com.  vs.  Smith,  10  Allen  (Mass.)  448;  1  Gumming  Cas. 

Priv.  Corp.  331;  W.  D.  Smith,  Cas.  Corp.  127;  Shep. 

Cas.  Corp.  Ill ;  White  Water  Valley  Canal  Co.  vs.  Val- 

lette,  21  How.  414;  Barry  vs.  Exchange  Co.,  1  Sandf. 

Ch.  (N.  Y.)  280;  Curtiss  vs.  Leavitt,  15  N.  Y.  9. 

Ordinarily  the  bonds  issued  by  an  industrial  or  railroad 
corporation  are  negotiable  instruments,  especially  if  they  are 
intended  for  sale  in  the  open  market  and  drawn  payable  to 
bearer. 

Mercer  County  vs.  Racket,  1  Wall.  83,  95;  Pendleton 
Co.  vs.  Amy,  13  Id.  297;  Haven  vs.  Grand  Junction  R. 
R.  Co.,  109  Mass.  88 ;  Morris  Canal  Co.  vs.  Lewis,  12 
N.  J.  Eq.  323;  Carr  vs.  Lefevre,  27  Pa.  St.  418;  Bunting 
vs.  Camden,  etc.  R.  R.  Co.,  81  Id.  254;  Virginia  vs. 
Marylaad,  32  Md.  547;  Blake  vs.  Livingston  Co.,  61 
Barb.  149;  New  Albany  Plank  Road  Co.  vs.  Smith,  23 
Ind.  353;  Soc.  for  Savings  vs.  New  London,  29  Conn. 
174. 

The  obligations  of  a  corporation  upon  its  bonds  are  in 
general  the  same  as  those  of  natural  persons. 

Brand  vs.  Donaldsonville,  28  La.  An.  558;  Hill  vs.  Man- 
chester, etc.  Water  Works  Co.,  2  Barn.  &  Aid.  544;  5 
Barn.  &  Adol.  866;  2  Nev.  &  M.  573;  Phila.,  etc.  R.  R. 
Co.  vs.  Lewis,  33  Pa.  St.  33. 

Th'e  coupons  attached  to  the  bond  are  independent  con- 
tracts for  the  payment  of  interest  when  they  are  detached, 
and  they  are  in  law  treated  and  regarded  as  currency  blank 
bills  or  as  the  original  bonds,  and  the  possession  of  such  a 
contract  or  coupon,  is-  presumptive  evidence  of  the  right  to 
receive  the  interest  covered  by  them. 

Thompson  vs.  Lee  County,  3  Wall.  327;  Cromwell  vs. 
County  of  Sac.,  94  LT.  S.  351,  362 ;  San  Antonio  vs.  Lane, 
32  Tex.  405  ;  Spooner  vs'.  Holmes,  102  Mass.  503 ;  Under- 
bill vs.  Trustees,  17  Cal.  172;  Morris  Canal  Co.  vs. 
Fisher,  1  Stock.t.  Ch.  667;  Evertson  vs.  Nat.  Bank,  66 
N.  Y.  14;  Murray  vs.  Lardner,  2  Wall.  110;  Commonw. 
vs.  Emigrant,  etc.  Bank,  98  Mass.  12;  Clarke  vs.  Janes- 


262  INDUSTRIAL     CORPORATIONS 

ville,  1  Biss.  98;  McCoy  vs.  Washington  County,  3  Wall. 
Jr.  381 ;  Burroughs  vs.  Richmond  County,  65  No.  Car. 
234;  Nat.  Exchange  Bank  vs.  Hartford,  etc.  R.  R.  Co., 
8  R.  1.  375;  Cicero  vs.  Clifford,  53  Ind.  191. 

The  power  fo  issu£  bonds  and  the  manner  in  which  they 
shall  be  issued  depends  upon  the  statutes  under  which  they 
are  issued,  and  if  there  is  a  mode  or  manner  of  issuing  bonds 
provided  by  statute,  that  mode  must,  be  carefully  followed, 
else  the  bond  will  be  invalid. 

Com  vs.  Smith,  10  Allen  (Mass.)  448;  1  Gumming,  Cas 
Priv.  Corp.  331;  W.  D.  Smith,  Cas.  Corp.  127;  Shep. 
Cas.  Corp.  111. 

Many  of  the  States  have  restrictive  provisions  upo-n  the 
issue  of  bonds,  and  they  are  generally  about  as  follows : — 

"No  corporation  shall  issue  stocks  or  bonds  except  for 
money,  labor  done,  or  money  or  property  actually  received ; 
and  all  fictitious  increase  of  stock  or  indebtedness  shall  be 
void." 

These  provisions  have  been  so  destructive  of  the  rights  erf 
innocent  holders  and  bona  fide  purchasers  that  the  courts  are 
very  reluctant  to  give  them  effect,  and  they  have  been  reduced 
to  the  point  of  where  the  issue  has  been  entirely  fictitious. 
They  do  not  affect  the  customary  methods  of  starting  a  cor- 
porate enterprise  by  the  issue  of  stock  and  bonds  for  the  pay- 
ment a'nd  construction'  of  corporate  works. 
1  Cook  on  Corp.,  47,  p.  127. 

At  common  law  a  corporation  may  issue  its  bonds  at  less 
than  their  par  value. 

Gamble  vs.  Queens  County  Water  Co.,  123  N.  Y.  91,  where 
the  court,  after  speaking  with  reference  to  the  stcuck  of  the 
company,  proceeded  to  say: — 

"A  different  rule,  however,  prevails  in  regard  to  the  bonds 
of  a  corporation.  An  extended  discussion  of  the  question  is 
not  needful.  We  think  a  corporation  has  the  power  to  issue 
its  bonds  at  less  than  par.  So  far  as  this  point  is  concerned, 
it  is  not  restricted  to  an  issue  only  upon  payment  to  the  com- 
pany of  the  par  value  of  the  bonds,  either  in  money  or  prop- 
erty for  its  use." 


1NCOKPOKAT1ON     OF     COMPANIES  263 

To  same  effect,  Lyceum  vs.  Ellis,  57  N.  Y.  Super.  Ct. 
532. 

The  holder  of  a  majority  of  the  stock  of  a  railroad  company 
may  legally  cause  its  bonds  to  be  issued  to  himself  at  ninety 
cents  on  a  dollar  in  payment  of  a  debt  due  him. 

Gloninger  vs.  Pittsburgh,  etc.  R.  R.,  139  Pa.  St.  13. 

A  corporation  may  issue  bonds  at  eighty  cents  on  the 
dollar. 

The  Vigilancia,  68  Fed.  Rep.  781. 

A  corporate  creditor  can  not  complain  that  a  company  sold 
its  bonds  to  some  of  the  directors  at  a  discount  of  twenty-five 
per  cent. 

Bank  of  Toronto  vs.  Cobourg,  etc.  Ry.,  10  Ont.  (Can.) 

376. 

Debentures  may  be  issued  at  a  discount,  even  sixty  per 
cent  discount  being  upheld  in  Webb  vs.  Shropshire  Ry.,  3  Ch. 
307. 

See  also  Handley  vs.  Stutz,  139  U.  S.  417;  Christensen 

vs.  Illinois,  etc.  Co.,  52  Hun.  478. 

But  an  agreement  of  a  corporation  to  issue  bonds  to  a 
subscriber  as  a  "bonus"  was  held  to  be  void,  and  the  sub- 
scription was  enforced,  in  Morrow  vs.  Nashville,  etc.  Co.,  87 
Tenn.  262.  In  Claflin  vs.  South  Carolina  R.  R.,  8  Fed.  Rep. 
118,  bonds  were  issued  at  the  rate  of  eighty  cents  on  the  dol- 
lar, and  no  question  was  raised  as  to  the  validity  of  the  issue. 
In  England  debentures  may  be  issued  at  a  discount  in  cash. 
Campbell's  Case,  L.  R.  4  Ch.  D.  470,  where  the  issue  was  to  a 
director;  Re  Regent's,  etc.  Co.,  L.  R.  3  Ch.  D.  43,  where  the 
pledge  of  debentures  shared  equally  with  purchasers,  on  wind- 
ing up,  to  the  extent  of  the  pledge;  Re  Anglo-Danubian,  etc. 
Co.,  L.  R.  20  Eq.  339. 

Re  Inns,  etc.  Co.,  L.  R.  6  Eq.  82. 

Where  railroad  bonds  are  issued  and  paid  for  in  Confed- 
erate currency,  they  can  be  enforced  only  to  the  extent  of  the 


264  INDUSTRIAL     CORPORATIONS 

purchasing  value  of  the  currency  thus  paid,  at  the  time  of  the 
purchase,  with  interest  upon  that  value. 

Spence  vs.  Mobile,  etc.  Ry.,  79  Ala.  576. 

It  is  illegal  to  issue  municipal  bonds  at  a  discount.  In 
Sherlock  vs.  Winnetka,  68  111.  530,  the  court  held  a  sale  of 
municipal  bonds  below  par  to  be  unlawful. 

Generally  a.  large  amount  of  stock  is  issued  with  bonds  in 
payment  for  property  or  construction  work  of  some  character. 
After  the  insolvency  of  the  company,  the  bonds  having  passed 
into  the  hands  of  bona  fide  holders,  if  an  attempt  is  made  to 
hold  the  contractors  liable  for  the  par  value  of  the  stock  on 
the  theory  it  has  never  been  paid  for.  The  weight  of  author- 
ity in  such  cases  holds  the  contractors  are  not  liable  for  the 
stock  whether  they  have  disposed  of  it  or  not. 

Where  all  the  stock  and  a  large  quantity  of  bonds  are  issued 
by  a  railroad  corporation  to  its  contractor  in  payment  for  the 
construction  of  the  road,  the  contractor  is  not  liable  to  cor- 
porate creditors  on  the  stock,  even  though  the  bonds  were  a 
sufficient  consideration  for  building  the  road,  unless  corporate 
creditors  prove  that  the  stock  at  the  time  of  its  issue  had  a  real 
or  market  value. 

"If,  when  disposed  of  by  the  railroad  company,  it  was 
without  value,  no  wrong  was  done  to  creditors." 

Even  the  Missouri  Constitution  and  statutes  do  not  change 
this  rule. 

Fogg  vs.  Blair,  139  U.  S.  118;  Van  Cott  vs.  Van  Brunt, 
82  N.  Y.  535. 

The  doctrine  laid  down  in  Van  Cott  vs.  Van  Brunt  was 
approved  in  Coe  vs.  East,  etc.  R.  R.,  52  Fed.  Rep.  531.  It  is 
legal  for  a  railroad  company  to  issue  bonds  and  stock  in  pay- 
ment for  the  construction  of  its  road.  If  all  the  parties  assent, 
no  one  can  complain. 

"As  the  stock  was  issued  as  a  part  of  the  consideration  for 
construction,  it  can  not  be  said  that  it  was  taken  without  value 
given."  "The  par  value  is  immaterial."  "The  fact  that  they 
were  created  for  an  expenditure  less  than  the  par  value  of  the 
aggregate." 


INCORPORATION     OF     COMPANIES  265 

"Issues  of  capital  stock  and  bonds  does  not  affect  the  ques- 
tion at  all." 

Barr  vs.  New  York,  etc.  R.  R.,  125  N.  Y.  263. 

At  common  law,  even  though  a  railroad  corporation  issues 
to  its  president  nearly  $1,400,000  of  mortgage  bonds  and  $700,- 
000  of  stock  for  construction  work  which  costs  only  about 
$700,000,  nevertheless  the  purchasers  of  such  stock  and  bonds 
can  not  cause  suit  to  be  brought  by  the  corporation,  after  the 
foreclosure  of  its  property,  and  hold  him  liable.  The  court 
held  that  inasmuch  as  the  stock  had  no  market  value  no  harm 
was  done.  The  court  said: — 

"Nor  is  it  true  that  those  took  the  stock  and  bonds,  and 
paid  for  them,  were  cheated  by  Kase,  in  any  real  sense  of  the 
word.  Is  any  man  of  ordinary  judgment  cheated  when  he 
pays  severi'ty-five  or  eighty  cents  on  the  dollar  for  a  seven  or 
eight  per  cent  railroad  bond,  receiving  with  the  bond  a  gift 
of  the  stock  in  many  cases  almost  equaling  the  face  value 
of  the  bond?  Such  a  purchaser  knew,  just  as  Kase  knew,  that 
the  value  of  the  paper  was  speculative.  If  Kase  lived,  if  he 
expended  the  money  in  construction,  if  he  completed  the  road, 
if  the  event  then  proved  it  to  be  a  meritorious  enterprise  (that 
is,  if  it  received  and  developed  traffic  sufficient  to  pay  operat- 
ing expenses,  fixed  charges,  and  reasonable  dividends),  the 
speculative  buyer  would  probably  more  than  double  his  money. 
If  any  one  of  the  contingencies  did  not  happen,  the  buyer 
lost ;  but  he  was  not  cheated,  except  in  the  sense  that  all  who 
bet  on  the  happening  of  an  uncertain  event,  and  lose,  are 
cheated." 

Danville,  etc.  R.  R.  vs.  Kase,  39  Atl.  Rep.  301  (Pa.). 

In  this  case  stock  and  bonds  had  been  issued  by  the  cor- 
poration for  land,  but  the  stock  had  no  market  value,  and  an 
effort  was  made  to  hold  the  vendor  of  the  land  liable  for  the 
par  value  of  the  stock  and  the  actual  value  of  the  bonds  less 
the  actual  value  of  the  land.  The  court  refused,  and  said: — 

"We  do  not  concur  with  the  master  in  his  conclusion  that 
Kase  should  refund  to  the  company  a  large  sum  of  money  in 
excess  of  the  profit  because  of  the  stock  received  by  him  in 
the  transaction.  He  finds  as  a  fact  that  the  stock  was  then, 
and  is  now,  worthless.  A  court  of  equity  does  not  perform  the 
duties  of  a  court  of  quarter  session,  does  not  order  restitu- 


266  INDUSTRIAL     CORPORATIONS 

tion  of  that  which  is  valuable,  and  also  impose  a  heavy  fine  on 
the  guilty.  The  company  has  the  land,  Kase  has  a  profit  of 
$111,000  bonds,  and  no  profit  in  the  worthless  stock.  He 
should  account  for  the  bonds  alone." 

Inasmuch,  however,  as  the  president  secretly  owned  land 
in  the  name  of  another  person,  and  caused  the  corporation  to 
purchase  it  and  issue  stock  and  bonds  in  payment,  without 
disclosing  his  interest  in  the  land,  he  was  held  liable  to  the  cor- 
poration for  the  difference  between  the  actual  market  value 
of  the  stock  and  bonds  and  the  actual  value  of  the  land. 

Danville,  etc.  R.  R.  vs.  Kase,  39  Atl.  Rep.  301  (Pa.). 

Although  $1,500,000  of  stock,  issued  as  fully  paid,  and 
$1,500,000  in  bonds,  are  issued  for  the  construction  of  a  work 
which  cost  less  than  $1,500,000,  yet  an  attorney  who  took  part 
in  the  transaction  can  not,  as  a  creditor  of  the  corporation, 
claim  that  the  stock  was  not  fully  paid. 

Ten  Eyck  vs.  Pontiac,  etc.  R.  R.,  72  N.  W.  Rep.  362 

(Mich.). 

In  Northwestern,  etc.  Ins.  Co.  vs.  Cotton,  etc.  Co.,  46  Fed. 
Rep.  22,  however,  the  court  held  that  where  property  worth 
$157,000  is  turned  into  a  corporation  for  $200,000,  payable  in 
$125,000  of  stock  and  $75,000  of  bonds,  the  creditors  of  the 
company  might  hold  the  parties  liable  on  the  stock  as  though 
it  were  unpaid  stock,  and  the  creditor  is  presumed  not  to 
have  known  of  the  transaction  when  he  contracted  the  debt. 
Where  a  railroad  worth  $112,000  is  sold  to  a  new  corporation 
for  $1,120,000  of  bonds  and  all  its  capital  stock,  the  trans- 
action is  fraudulent.  The  bondholders  may  obtain  judgment 
against  the  company  on  their  bonds,  and  then  compel  the 
stockholders  to  pay  the  full  par  value  of  their  stock. 

Preston  vs.  Cincinnati,  etc.  R.  R.,  36  Fed.  Rep.  54. 

In  Lloyd  vs.  Preston,  146  U.  S.  630,  aff'g  36  Fed.  Rep.  54, 
where  the  owner  of  a  railroad  sold  it  to  a  newly  organized  cor- 
poration for  stock  and  bonds,  the  par  value  of  which  was  fifty 
times  the  real  value  of  the  railroad,  the  bondholders  and  other 
creditors  who  obtained  judgment  against  the  corporation,  the 


INCORPORATION     OF     COMPANIES  267 

execution  being  returned  unsatisfied,  may  hold  the  party  re- 
ceiving the  stock  liable  thereon,  on  the  ground  that  the  sub- 
scription price  of  such  stock  has  never  been  paid.  The  court 
said : — 

"The  entire  organization  was  grossly  fraudulent  from  first 
to  last,  without  a  single  honest  incident  or  redeeming  feature." 

The  court  also  said : — 

"It  having  been  found  on  convincing  evidence,  that  the 
over-valuation  of  the  property  transferred  to  the  railway  com- 
pany by  Harper  in  pretended  payment  of  the  subscriptions  to 
the  capital  stock,  was  so  gross  and  obvious  as,  in  connection 
with  other  facts  in  the  case,  to  clearly  establish  a  case  of 
fraud,  and  to  entitle  bona  fide  creditors  to  enforce  actual  pay- 
ment by  the  subscribers,  it  only  remains  to  consider  the  effect 
on  the  defenses  set  up." 

The  court  will  sustain  issues  of  bonds  even  though  the 
value  of  the  property  or  construction  work  is  far  less  than 
the  value  of  the  bonds. 

In  White  Water,  etc.  Co.  vs.  Valletta,  21  How.  414,  the 
court  held  thajt  bonds  issued  in  payment  for  the  completion 
of  a  canal  were  legal,  although  the  sum  for  which  they  were 
issued  was  largely  greater  than  the  estimated  cost  of  the 
work.  In  that  case  the  bonds  were  issued  at  about  fifty  cents 
on  the  dollar.  Railroad  bonds  issued  to  pay  for  the  construc- 
tion of  the  road  are  not  rendered  invajid  by  proof  that  the 
road  could  have  been,  or  was,  constructed  for  less  than  the 
amount  of  such  bonds,  if  the  contract  for  its  construction  was 
fairly  made  and  carried  out,  and  called  for  the  amount  of 
bonds  actually  issued,  and  no  fraud  is  charged  in  the  incep- 
tion or  execution  of  such  contract.  Such  a  question,  however, 
may  be  raised  before  the  master  upon  the  distribution  of  the 
fund  realized  upon  foreclosure. 

Farmers'  L.  &  T.  Co.,  vs.  Rockaway  Valley  R.  R.,  69 
Fed.  Rep.  9. 

Even  though  a  party  acquires  all  the  stock  of  a  corpora- 
tion, amounting  to  $1,500,000,  and  then  through  dummy  di- 
rectors issues  $3,500,000  additional  stock  and  $4,000,000  of 


268  INDUSTRIAL     CORPORATIONS 

mortgage  bonds  to  himself,  and  then  proceeds  to  sell  the  stock 
and  bonds  to  the  public,  yet  a  person  who  purchases  some 
of  the  stock  can  not  file  a  bill  in  equity  against  the  corpora- 
tion to  set  aside  the  transaction  and  to  ascertain  what  part 
of  his  stock  is  legal.  His  remedy  is  at  law  for  damages,  or 
he  may  repudiate  and  recover  back  his  money. 

"It  is  elementary  that  the  court  is  possessed  of  no  power  to 
make  a  new  contract  between  parties  entirely  distinct  and  dif- 
ferent from  the  contract  that  they  have  entered  into." 

Church  vs.  Citizens'  Street  Ry.,  78  Fed.  Rep.  526. 

A  delivery  of  bonds  as  payment  in  advance  for  services  to 
be  rendered  in  selling  other  bonds  can  not  be  rescinded,  where 
by  subsequent  agreement  a  loan  with  the  bonds  as  collateral 
was  negotiated,  the  bonds  to  be  subsequently  sold. 

American  L.  &.  T.  Co.  vs.  Toledo,  etc.  Ry.,  47  Fed.  Rep. 

343 ;  aff'd,  Burke  vs.  American  L.  &.  T.  Co.,  155  U.  S. 

534. 

The  plan  of  issuing  large  quantities  of  stocks  and  bonds 
of  a  railroad  company  to  a  contractor,  the  bonds  being  all 
"water,"  is  declared  illegal  in  Central  Trust  Co.  vs.  New  York, 
etc.  R.  R.,  18  Abb.  N.  Cas.  381,  395,  holding  also  that  the  full 
amount  of  the  bonds  can  be  claimed  only  by  bona  fide  holder 
without  notice,  and  that  the  other  bonds  will  be  paid  only  in 
proportion  to  the  actual  value  of  the  property  given  to  the 
company  for  them.  The  celebrated  case  of  Columbus,  etc.  Ry. 
vs.  Burke  is  in  point  here.  It  appears  that  in  July,  1881,  Burke 
purchased  the  entire  capital  stock  (except  seven  shares  which 
seem  to  have  been  lost)  of  three  coal-carrying  railroad  com- 
panies in  Ohio  and  consolidated  them.  He  owned  also  the 
stock  of  another  coal  and  railroad  company.  Accordingly, 
he  caused  the  consolidated  company  to  issue  $8,000,000  of  its 
mortgage  bonds  in  purchase  and  payment  for  the  stock  of  the 
coal  and  railroad  company,  which  was  worth  less  than  $1,500,- 
000.  He  then  sold  the  bonds  and  kept  the  proceeds.  The 
bonds  recited  on  their  face  that  they  were  for  double  track- 
ing, equipment,  and  improvement  purposes.  No  default  was 
ever  made  on  the  bonds.  They  passed  into  bona  fide  hands. 


INCORPORATION     OF     COMPANIES  269 

The  consolidated  company  also  passed  into  their  hands.  In 
1887,  or  thereabouts,  the  company  commenced  suit  against 
Burke  and  others  to  compel  an  accounting  and  to  reach  the 
stock  of  the  company,  which  Burke  had  paid  for  out  of  the 
proceeds  of  the  $8,000,000  of  the  bonds.  A  preliminary  in- 
junction against  his  transferring  the  stock  was  obtained,  and 
his  motion  to  dissolve  this  injunction  was  denied. 

Columbus,  etc.  Ry.  vs.  Burke,  19  Week.  L.  Bull.  27 

(Ohio). 

Subsequently  the  case  was  withdrawn  from  the  courts 
and  submitted  to  three  arbitrators.  These  arbitrators  decided 
in  1888  that  the  company  had  no  remedy. 

Columbus,  etc.  Ry.  vs.  Burke,  20  Week.  L.  Bull.  287. 

Then  a  bona  fide  holder  of  some  of  the  bonds  brought  a 
suit  in  equity  in  the  New  York  courts  to  compel  Burke  to 
account  to  the  corporation  for  the  value  of  the  bonds  so  taken 
by  him.  A  demurrer  to  the  bill  was- overruled. 

Belden  vs.  Burke,  N.  Y.  L.  J.,  Nov.  3,  1890. 

Upon  the  trial  of  this  case,  however,  the  suit  was  dismissed, 
chiefly  on  the  ground  that  the  plaintiff  bondholder  was 
estopped  by  the  fact  that  the  chain  of  title  of  his  bonds  ran 
through  the  guilty  parties  themselves. 

Belden  vs.  Burke,  20  N.  Y.  Supp.  320. 

This  decision  was  reversed  by  the  general  term,  72  Hun. 
51.  The  case  then  went  to  the  New  York  Court  of  Appeals. 
In  a  suit  a«t  law  by  the  company  to  compel  the  associates  of 
Burke — the  parties  to  whom  he  sold  the  bonds — to  pay  over 
the  proceeds  of  the  bonds,  the  court  directed  a  verdict  for  the 
defendants,  chiefly  on  the  ground  that  all  the  stockholders 
had  assented  to  the  transaction. 

Columbus,  etc.  Ry.  vs.  Lanier,  N.  Y.  L.  J.,  Feb.  4,  1893. 

Where  a  corporation  agrees  to  pay  for  railway  bonds,  and 
does  not  fulfil,  the  vendor  may  hold  it  liable  for  the  full  par 
value  of  the  bonds,  although  they  are  less  than  par. 

Parties  owning  real  estate  may  convey  it  to  a  corporation 


270  INDUSTRIAL     CORPORATIONS 

formed  for  that  purpose  and  take  bonds  in  payment,  and  the 

transaction  is  perfectly  valid. 

"No  just  criticism  is  possible  either  upon  the  legality  or 

morality  of  the  transaction.    Evidence  was  given  to  show  that 

the  land  conveyed  was  not  worth  the  sum  secured,  but  that 

is  a  totally  immaterial  fact.     Whatever  the  price,  it  wronged 

no  one,  and  could  wrong  no  one." 

Seymour  vs.  Spring  Forest  Cem.  Assoc.,  144  N.  Y.  33. 
The  corporation  may  issue  bonds  to  its  stockholders  as  a 

dividend  in  lieu  of  cash  where  it  has  used  its  surplus  earnings 

to  improve  its  property. 

Wood  vs.  Lary,  124  N.  Y.  83;  S.  C,  47  Hun.  550:  State 
vs.  Baltimore,  etc.  Co.,  6  Gill  (Md.)  363;  Merz  vs.  In- 
terior Conduit,  etc.  Co.,  87  Hun.  430;  S.  C.,  46  N.  Y. 
Supp.  243;  Chaffee  vs.  Rutland  R.  R.,  55  Vt.  110,  139; 
Virginia,  etc.  Co.  vs.  Mercantile  Trust  Co.,  12  N.  Y. 
Supp.  529;  Schilling,  etc.  Co.  vs.  Schneider,  110  Mo. 
83 ;  Boston,  etc.  Co.  Bankers',  etc.  Co.,  36  Fed.  Rep.  288 ; 
United  Lines  Tel.  Co.  vs.  Boston,  etc.  Co.,  147  U.  S.  431 ; 
Pusey  vs.  New  Jersey  R.  R.,  14  Abb.  Pr.  (N.  S.)  434; 
Memphis,  etc.  R.  R.  vs.  Dow.,  120  U.  S.  287;  Swift  vs. 
Smith,  65  Md.  428;  Little  Garabrant,  90  Hun.  404, 
aff'd,  153  N.  Y.  661;  Osborn  vs.  Montelac  Park,  89 
Hun.  167;  Buffalo  Loan,  etc.  Co.,  Medina  Gas,  etc. 
Co.,  12  N.  Y.  App.  Div.  199;  Millsaps  vs.  Merchants', 
etc.  Bank,  71  Miss.  361 ;  Solomon  Co.,  vs.  Barber.  49 
Pac.  Rep.  524  (Kan.)  ;  Long  Island  L.  &.  T.  Co.  vs. 
Columbus,  etc.  Ry.,  65  Fed.  Rep.  455 ;  Farmers'  L.  & 
T.  Co.  vs.  Forest  Park,  etc.  R.  R.,  65  Fed.  R'ep.  882; 
Germania,  etc.  Co.  vs.  Bovnton,  71  Fed.  Rep.  797; 
Re  Brockaway  Mfg.  Co.,  89  Me.  12i ;  Washington  Mill 
Co.  vs.  Sprague  Lumber  Co  52  Pac.  Rep.  1067  (Wash.). 

§  204.     Acknowledgments. 

AcknoAvledgments  to  instruments  of  writing  were  un- 
known at  the  common  law.  They  arose  in  legislative  enact- 
ments for  the  protection  of  creditors  and  purchasers.  The 
object  of  acknowledgments  are  twofold.  First  to  entitle  a 
deed  or  other  instrument,  to  record  in  the  proper  required 
archives  of  the  State  or  country  where  the  property  is  sit- 
uate. Second,  to  make  the  instrument  competent  evidence 


INCORPORATION     OF     COMPANIES  271 

without  further  proof  of  its  execution.  It  has  received  a 
severe  scrutiny  by  the  courts,  many  times  falling  far  short  of 
their  sanction  or  approval,  as*  will  be  hereafter  shown  in  this 
chapter.  Twofold  object  of  acknowledgment. 

Doe  vs.  Smith,  3  McLean  (U.  S.)  362;  Griesler  vs.  Mc- 
Kennon,  44  Ark.  517;  Fogarty  vs.  Finlav,  10  Cal.  239; 
70  Am.  Dec.  714;  Clark  vs.  Troy,  20  Caf.  219;  Landers 
vs  Bolton,  26  Cal.  393;  Wetherbee  vs.  Dunn,  32  Cal 
106;  Stanton  vs.  Button,  2  Conn.  527;  Reed  vs.  Kemp, 
16  111.  445;  Allen  vs.  Vincennes,  25  Ind.  531;  State  vs. 
Dufour,  63  Ind.  567 ;  Harrington  vs.  Fortner,  58  Mo. 
468;  Burbank  vs.  Ellis,  7  Neb.  156;  Wark  vs.  Willard. 
13  N.  H.  389;  Jackson  vs.  Shepard,  2  Johns.  (N.  Y.)  77; 
Johnson  vs.  Bush,  3  Barb.  Ch.  (N.  Y.)  207;  Elwood  vs. 
Klock,  13  Barb.  (N.  Y.)  50;  Foster  vs.  Dennison,  9 
Ohio  121 ;  Woolfolk  vs.  Graniteville  Mfg.  Co.,  22  S.  Car. 
332 ;  Wiggins  vs.  Fleishel,  50  Tex.  57 ;  Pitkin  vs.  Leavitt, 
13  Vt.  379;  Hutchinson  vs.  Rust,  2  Gratt.  (Va.)  394; 
Hinchliff  vs.  Hinman,  18  Wis.  139;  Ward  vs.  Fuller,  15 
Pick.  (Mass.)  185;  Loree  vs.  Abner,  6  C.  C.  A.  302;  6 
U.  S.  App.  649;  Bradford  vs.  Dawson,  2  Ala.  203 ;  Pierce 
vs.  Brown,  24  Vt.  165. 

§  205.     Acknowledgment  Essential  to  Admit  Deed  to  Record. 

Loree  vs.  Abner,  6  C.  C.  A.  302;  6  U.  S.  App.  649; 
Haskill  vs.  Sevier,  25  Ark.  153;  White  vs.  Magarahan. 
87  Ga.  217;  Doe  vs.  Naylor,  2  Blackf.  (Ind.)  32;  Bever 
vs.  North,  107  Ind.  544;  Westhafer  vs.  Patterson,  120 
Ind.  459;  16  Am.  St.  Rep.  330;  Brinton  vs.  Seevers,  12 
Iowa  389;  Meskimen  vs.  Day,  35  Kan.  46;  Pidge  vs. 
Tyler,  4  Mass.  541 ;  Buell  vs.  Irwin,  24  Mich.  145 ;  Peo- 
ple vs.  Marion,  29  Mich.  31;  Hughes  vs.  Morris,  110 
Mo.  306;  Powell's  Appeal,  98  Pa.  St.  403;  M'lver  vs. 
Robertson,  3  Yerg.  (Tenn.)  84;  Deen  vs.  Wills,  21 
Tex.  642;  Holliday  vs.  Cromwell,  26  Tex.  188;  Coffey 
vs.  Hendricks,  66  Tex.  676;  Stramler  vs.  Coe,  15  Tex. 
211;  Gordon  vs.  Collett,  107  N.  Car.  362;  Tarpey  vs. 
Deseret  Salt  Co.,  5  Utah  205. 

The  chief  object  of  a  certificate  of  acknowledgment  is  to 
admit  the  deed  to  registry. 

Black  vs.  Gregg,  58  Mo.  565. 


272  INDUSTRIAL     CORPORATIONS 

Alabama  Act  of  1828. 

Hobson  vs.  Kissam,  8  Ala.  357;  Herbert  vs.  Hanrick, 
16  Ala.  581. 

Acknowledgment  not  necessary  for  recording  when  exe- 
cution is  otherwise  proved. 

Kimmarle  vs.  Houstan,  etc.  R.  Co.,  76  Tex.  686. 

Record   essential   to   admission   in   evidence. 

Keichline  vs.  Keichline,  54  Pa.  St.  75 ;  M'Dill  vs.  M'Dill, 
1  Dall.  (Pa.)  63;  Hamilton  vs.  Galloway,  Dall.  (Pa.) 
93 ;  Wilson  vs.  Spring,  38  Ark.  181 ;  Watson  vs.  Billing, 
38  Ark.  278;  42  Am.  Rep.  1. 

Record  of  acknowledgment  not  essential. 

Chandler  vs.  Bailey,  89  Mo.  641 ;  Gardner  vs.  Porr 
Blakely  Mill  Co.,  8  Wash.  1. 

Duly  acknowledged  deed  admissible  in  evidence  without 
further  proof  of  execution. 

Houghton  vs.  Jones,  1  Wall.  (U.  S.)  702;  New  York 
Pharmical  Assoc.  vs.  Tilden,  14  Fed.  Rep.  740;  Barnett 
vs.  Proskauer,  62  Ala.  486;  Bradford  vs.  Dawson,  2  Ala. 
203;  Landers  vs.  Bolton,  26  Cal.  393;  Wetherbee  vs. 
Dunn,  32  Cal.  106;  McGinnis  vs.  Egbert,  8  Colo.  41; 
Stanton  vs.  Button,  2  Conn.  527;  L'Engle  vs.  Reed,  27 
Fla.  345 ;  Post  vs.  Springfield  First  Nat.  Bank,  138  111. 
559;  Schroder  vs.  Kellar,  84  111.  46;  Allen  vs.  Vincennes, 
25  Ind.  531 ;  Doe  vs.  Naylor,  2  Blackf.  (Ind.)  32;  Simp- 
son vs.  Mundee,  3  Kan.  172;  McCauslin  vs.  McGuire,  14 
Kan.  234;  Wilkins  vs.  Moore,  20  Kan.  538;  Hutchins  vs. 
Dixon,  11  Md.  29;  Ferris  vs.  Boxell,  34  Minn.  262;  El- 
lingboe  vs.  Brakken,  36  Minn.  156;  McMillan  vs.  Ed- 
fast,  50  Minn.  414;  Romer  vs.  Conter,  53  Minn.  171; 
Morris  vs.  Wadsworth,  17  Wend.  (N.  Y.)  103;  Black- 
man  vs.  Riley,  63  Hun.  (N.  Y.)  521  ;  Duncan  vs.  Dun- 
can, 1  Watts  (Pa.)  322;  Parker  vs.  Chancellor,  73  Tex. 
475;  Hutchinson  vs.  Rust,  2  Gratt.  (Va.)  394. 

It  had  its  origin  in  the  desire  to  prevent  fraud  and  liti- 
gation in  the  establishment  of  land  titles  and  to  provide 
reliable  evidence  of  transfers. 

Origin   of  the  practice  of  taking  acknowledgments. 

French  vs.  Gray,  2  Conn.  92;  Gould  vs.  Howe,  131  111. 


INCORPORATION     OF     COMPANIES  273 

490 ;  Pidge  vs.  Tyler,  4  Mass.  541 ;  Shaw  vs.  Poor,  6 
Pick  (Mass.)  86;  17  Am.  Dec.  347;  Moore  vs.  Thomas, 
1  Oregon  201 ;  Saunders  vs.  Hackney,  10  Lea  (Tenn.) 
194;  Taylor  vs.  Harrison,  47  Tex.  454;  26  Am.  Rep.  304. 

In  absence  of  statute, — acknowledgment  not  necessary. 
Stevens  vs.  Griffith,  3  Vt.  448;  Hill  vs.  Greenwood,  23 
U.  C.  Q.  B.  404. 

The  acknowledgment  of  an  instrument  is  not  an  essential 
part  of  the  instrument,  and  is  only  placed  upon  the  record 
to  give  constructive  notice.  Persons  with  actual  notice  are 
as  much  bound  by  the  instrument  as  if  it  were  acknowledged 
and  recorded. 

Unacknowledged  deed  good  between  parties. 

Wood  vs.  Owings,  1  Cranch  (U.  S.)  239;  Doe  vs.  Smith, 
3  McLean  (U.  S.)  362;  Richards  vs.  Randolph,  5  Ma- 
son (U.  S.)  115;  Sicard  vs.  Davis,  6  Pet.  (U.  S.)  124; 
Hepburn  vs.  Dubois,  12  Pet.  (U.  S.)  345 ;  New  Hamp- 
shire Land  Co.  vs.  Tilton,  19  Fed.  Rep.  73. 

§  206.    Acknowledgments   Intended   to   Protect  Purchasers 
and  Creditor. 

In  Sicard  vs.  Davis,  6  Pet.  (U.  S.)  124  the  court  by 
Marshall,  C.  J.  said: — 

"The  acknowledgment  of  the  proof  which  may  authorize 
the  admission  of  the  deed  to  record,  and  the  recording  thereof, 
are  provision  which  the  law  makes  for  the  security  of  creditor 
and  purchasers.  They  are  essential  to  the  validity  of  the  deed, 
as  to  persons  of  that  description,  not  as  to  the  grantor.  His 
estate  passes  out  of  him  and  vests  in  the  grantee  so  far  as 
respects  himself,  as  entirely,  if  the  deed  be  in  writing,  sealed 
and  delivered,  as  if  it  be  also  acknowledged  or  attested  and 
proved  by  three  subscribing  witnesses,  and  recorded  in  the 
proper  court.  In  a  suit  between  them,  such  a  deed  is  com- 
pletely executed,  and  would  be  conclusive,  although  never  ad- 
mitted to  record,  nor  attested  by  any  subscribing  witness. 
Proof  of  sealing  and  delivery  would  alone  be  required,  and 
the  acknowledgment  of  the  fact  by  the  party  would  be  suffi- 
cient proof  of  it." 

See  also  Hopping  vs.  Burman,  2  Greene  (Iowa)  39. 

19 


274  INDUSTRIAL     CORPORATIONS 

§  207.    Acknowledgments  General  Requisites. 

1.  Acknowledgment  generally  must  state,  first  the  place 
where  taken. 

State  of ,  county,  ss. ; 

State  of ,   county,  set.; 

State  of ,   county,  to  wit : 

State  of ,  county  of ,  city  of ,  ss. ; 

State  of ,  city     (or     department,     district,     parish, 

town,  township,  or  other  place  where  the  officer  takes 
the  acknowledgment,  of ,  ss. ; 

Territory  of ,  city,  etc.,  of ,  ss. ; 

Province  of ,  Dominion  of ,  etc. ; 

Port  of ,  Empire  of ,  etc. 

SS.  is  an^abbreviation  used  in  that  part  of  a  record,  plead- 
ing or  affidavit,  called  the  "statement  of  the  venue."  Com- 
monly translated  or  read,  "to  wit,"  and  supposed  to  be  a  con- 
traction of  "scilicet." 

Black's  Law  Dictionary,  p.  1117. 

2.  The  commencement  of  the  acknowledgment  or  certifi- 
cate. 

I  certify  that,  etc. 

I  do  hereby  certify  that  on  this  ....  day  of  .  . .  .,  in  the  year 
before  the  subscriber,  a ,  etc. 

On  this  ....  day  of  ....  personally  appeared  before  me,  a 
....  (giving  your  official  title)  in  and  for  said  county,  came 
(or  personally  appeared)  G.  R.,  etc. 

On  this  ....  day  of  .  .  .  . ,  before  me  (the  undersigned) 
O.  R.,  a  (give  official  title)  in  and  for  said  county  (or  city), 
etc.,  came  (or  personally  appeared)  G.  R.,  etc. 

I,  O.  R.,  a  ....  in  and  for  said  county  (or  city,  etc.)  do 
hereby  certify  unto  all  whom  it  may  concern  that  G.  R.  did 
this  day  appear  before  me,  etc. 

Be  it  remebered,  that  on  this  ....  day  of  .  . .  . ,  before  me, 
O.  R.,  a  (stating  the  name  of  his  office)  in  and  for  said  county, 
the  grantors,  G.  N.  T.  R.  and  R.  S.,  etc. 

Boston,  July  4,  1876,  then  personally  appeared  the  above 
G.  R.,  etc. 

3.  The  subject  matter  of  the  acknowledgment. 

4.  The  witnessing  or  the  affirmation  clause. 
Given  under  my  hand  and  seal  of  office ; 


INCORPORATION     OF     COMPANIES  275 

Given  under  my  hand  and  seal  this  ....  day  of  . . .  .  ; 

In  testimony  whereof,  I  have  hereunto  set  my  hand  and 
(official  or  notarial)  seal,  the  day  and  year  last  above  written 
(or,  the  ....  day  of  ....); 

In  testimony  whereof,  I  have  caused  the  seal  of  (the  .... 
Court)  to  be  affixed  (at  .  . .  .)  this  .  . .  .day  of  .  . .  .  ; 

In  witness  whereof,  etc. 

5.  The  signature  of  the  officer  or  prothonotary. 
(L.  S.)  M.  R.,  Mayor  of 

J.  P.,  Justice  of  the  Peace.     (Seal). 
(L.  S.)  N.  P.,  Notary  Public. 
(L.  S.)   P.  O.,  Presiding  Officer  of  (state  what). 

(L.  S.)   C.  C,  Clerk  of  the Court. 

(L.  S.)  J.  J.,  Judge  of  the Court. 

(L.  S.)   C.  D.,  Commissioner  of  deeds  for  the  state  of 

(L.  S.)   C.    L.,   Consul   of  the   United   States   of  America 
resident  at 

6.  Official  seal  of  the  officer,  if  he  has  one. 

7.  Date  of  the  expiration  of  the  officer's  commission,  if 
the   statute   requires   it,   such   as   the   commission   of   notary 
publics. 

Acknowledgment  of  deeds  and  other  instruments  by 
corporations  are  like  those  of  individuals  in  their  essential 
elements,  but  a  corporation  being  an  invisible  person  acting 
by  and  through  agents,  its  acknowledgments  must  be  done 
by  those  officers  and  representatives  of  the  corporation  who 
have  authority  to  execute  its  contracts. 

Hopper  vs.  Lovejoy,  47  N.  J.  Eq.  573 ;  Lovett  vs.  Steam 

Saw  Mill  Assoc.,  6  Paige  (N.  Y.)  54;  New  Haven  Sav. 

Bank  vs.  Davis,  8  Conn.  191 ;  Morris  vs.  Keil,  20  Minn. 

531;   Evans  vs.   Lee,   11   Nev.   194;   Bason  vs.   King's 

Mountain  Min.  Co.,  90  N.  Car.  417. 

As  said  by  Judge  Story : — 

"Anciently  it  seems  to  have  been  held  that  corporations 
could  not  do  anything  without  deed.  Afterward  the  rule 
seems  to  have  been  relaxed,  and  they  were,  for  convenience's 
sake,  permitted  to  act  in  ordinary  matters  without  deed, — as 
to  retain  a  servant,  cook,  or  butler, — and  gradually  this  re- 
laxation widened  to  embrace  other  objects.  At  length  it  seems 
to  have  been  established  that,  though  they  could  not  contract 


276  INDUSTRIAL     CORPORATIONS 

directly,  except  under  their  corporate  seal,  yet  they  might,  by 
mere  vote  or  other  corporate,  act,  not  under-  their  corporate 
seal,  appoint  an  agent,  whose  acts  and  contfacts,  within  the 
scope  of  his  authority,  would  be  binding  on  the  corporation. 
.  .  .  The  technical  doctrine  that  a  corporation  could  not 
contract  except  under  its  seal,  or,  in  other  words,  could  not 
make  a  promise,  if  it  ever  had  been  fully  settled  must  have 
been  productive  of  great  mischiefs.  Indeed,  as  soon  as  the 
doctrine  was  established  that  its  regularly  appointed  agent 
could  contract  in  their  name  without  seal,  it  was  impossible 
to  support  it ;  for  otherwise  the  party  who  trusted  such  con- 
tract would  be  without  remedy  against  the  corporation.  Ac- 
cordingly, it  would  seem  to  be  a  sound  rule  of  law  that, 
wherever  a  corporation  is  acting  within  the  scope  of  the 
legitimate  purposes  of  its  institution,  all  parol  contracts  made 
with  its  authorized  agents  are  express  promises  of  the  cor- 
poration ;  and  all  duties  imposed  upon  them  by  law,  and  all 
benefits  conferred  at  their  request,  raise  implied  promises  for 
the  enforcement  of  which  an  action  may  well  lie." 

Bank  of  Columbia  vs.  Patterson,  7  Cranch.  299;  Hall 
vs.  Mayor  of  Swansea,  5  Q.  B.  526;  Jefferys  vs.  Gurr,  2 
Barn.  &  Adol.  833;  Seagraves  vs.  Alton,  13  111.  366; 
Trustees  vs.  Ogden,  5  Ohio  23. 

The  rule  of  the  common  law  as  expressed  by  Judge  Story 
and  its  modification  has  not  abated  the  rule  that  where  an 
individual  would  be  compelled  to  execute  a  contract  under 
seal,  still  the  corporation  must  execute  such  a  contract  under 
seal,  and  the  party  to  affix  the  corporate  seal  to  an  instrument 
is  the  proper  party  to  make  the  acknowledgment  to  that  in- 
strument. 

Acknowledged  by  officer  affixing  seal. 

Kelly  vs.  Calhoun,  95  U.  S.  710;  Murphy  vs.  Welch,  128 
Mass.  489;  Merrill  vs.  Montgomery,  25  Mich.  73";  Bow- 
ers vs.  Hechtman,  45  Minn.  238;  Lovett  vs.  Steam  Saw 
Mill  Assoc.,  6  Paige  (N.  Y.)  54;  Sheehan  vs.  Davis,  17 
Ohio  St.  571 ;  Jinwright  vs.  Nelson  (Ala.,  1895),  17  So. 
Rep.  91;  Johnson  vs.  Bush,  3  Barb.  Ch.  (N.  Y.)  207; 
Isham  vs.  Bennington  Iron  Co.,  19  Vt.  230. 

In  Bowers  vs.  Hechtman,  45  Minn.,  238,  the  court  by 
Mitchell,  J.,  said:— 

"The  officer  or  agent  who,  in  behalf  of  the  corporation, 


INCORPORATION     OF     COMPANIES  277 

affixes  the  common  seal  to  an  instrument,  is,  in  the  absence 
of  any  statutory  provision,  deemed  the  party  executing  it.  He 
also  stands  in  the  relation  of  a  subscribing  witness  to  the 
execution  of  the  deed  by  the  corporation,  and  is  the  proper 
party  to  be  examined  or  to  make  affidavit  to  prove  that  the 
seal  affixed  by  him  was  the  corporate  seal,  and  that  it  was 
affixed  by  authority  of  the  board  of  directors." 

Acknowledgments  of  contracts  may  be  made  by  the  presi- 
dent, vice-president,  secretary,  treasurer,  cashier  of  bank  or 
other  authorized  officers  and  agents  of  the  corporation. 

Sawyer  vs.  Cox,  63  111.  130;  Fitch  vs.  Lewiston  Steam 
Mill  Co.,  80  Me.  34;  Frostburg  Mut.  Bldg.  Assoc.  vs. 
Brace,  51  Md.  508;  Merrill  vs.  Montgomery,  25  Mich. 
73  ;  Gray  vs.  Waldron,  101  Mich.  612 ;  Bowers  vs.  Hecht- 
man,  45  Minn.  238;  Missouri  Fire  Clay  Works  vs.  El- 
lison, 30  Mo.  App.  67;  Kansas  City  vs.  Hannibal,  etc. 
R.  Co.,  77  Mp.  180 ;  Eppright  vs.  Nickerson,  78  Mo.  482 ; 
Tenny  vs.  East  Warren  Lumber  Co.,  43  N.  H.  343; 
Hoopes  vs.  Auburn  Water  Works  Co.,  37  Hun.  (N.  Y.)' 
572;  Muller  vs.  Boone,  63  Tex.  91;  Ballard  vs.  Car- 
michael,  83  Tex.  355 ;  McDaniels  vs.  Flower  Brook  Mfg. 
Co.,  22  Vt.  274;  Smith  vs.  Smith,  62  111.  493;  Chicago, 
etc.  R.  Co.  vs.  Lewis,  53  Iowa  101 ;  Morse  vs.  Beale,  68 
Iowa  463;  Ingraham  vs.  Grigg,  13  Smed.  &  M.  (Miss.) 
22;  Johnson  vs.  Badger  Mill,  etc.  Co.,  13  Nev.  351. 

Municipality. 

•Middleton  Sav.  Bank  vs.  Dubuque,  19  Iowa  467. 

Acknowledgment  by  trustees  of  corporation. 

Miners'  Ditch  Co.  vs.  Zellerbach,  37  Cal.  543 ;  99  Am. 
Dec.  300 ;  Corporate  mortgage  without  seal,  North  Caro- 
lina; Duke  vs.  Markham,  105  N.  Car.  131;  18  Am.  St. 
Rep.  889. 

Acknowledgment  by  president  and  secretary  where  there 
is  no  special  provision. 

Jinwright  vs.  Nelson  (Ala.),  17  So.  Rep.  91. 
Missouri:     Sufficient  corporation  acknowledgment. 

Huse  vs.  Ames,  104  Mo.  91.    • 
Acknowledgment  not  showing  official  character  of  officers. 

Klemme  vs.  McLay,  68  Iowa  158. 


278  INDUSTRIAL     CORPORATIONS 

Acknowledgment  before  an  officer  of  the  corporation. 
Sawyer  vs.  Cox,  63  111.  130;  Benson  Bank  vs.  Hove,  45 
Minn.  40;  Horton  vs.  Columbian  Bldg.  Assoc.,  6  Cine. 
L.  Bull.   (Ohio)   141. 

While   it  is   the   proper  manner   of   acknowledgments   of 
corporate  instruments  that  it  should  be  done  by  the  proper 
corporate  official  and  signed  with  the  corporate  signature  and 
acknowledged  by  the  officer,  still  it  has  been  held  that  where 
an   officer  of  the   corporation   signed   the   instrument   by   his 
official   signature  and  acknowledged   the   instrument  by  and 
in  their  individual  names,  still  the  acknowledgment  was  held 
to  be  sufficient.     Thus  a  corporate  deed  was  signed  by  "F, 
the  president  of  the  L.  Company,"  and  "C,  the  treasurer  of 
the  L.  Company,"  and  acknowledged  by  F.  and  C.  as  indi- 
viduals, and  the  acknowledgment  was  held  to  be  sufficient. 
Tenny  vs.  East  Warren  Lumber  Co.,  43  N.  H.  343; 
Fitch  vs.  Lewiston  Steam  Mill  Co.,  80  Me.  34;  Hoopes 
vs.  Auburn  Water  Works  Co.,  37  Hun.  (N.  Y.)  572. 

Acknowledgment  by  attorney  for  corporation. 

Frostburg  Mut.  Bldg.  Assoc.  vs.  Brace,  51  Md.  508; 
Comp.  Howe  Mach.  Co.  vs.  Avery,  16  Hun.  (N.  Y.) 

555. 

Acknowledgment  of  Articles  of  Incorporation. 

People  vs.  Montecito  Water  Co.,  97  Cal.  276;  Larrabee 
vs.  Baldwin,  35  Cal.  155 ;  Second  M.  E.  Church  vs. 
Humphrey  (Supreme  Ct.),  21  N.  Y.  Supp.  89;  66  Hun. 
(N.  Y.)  628;  Comp.  First  Baptist  Soc.  vs.  Rapalee,  16 
Wend.  (N.  Y.)  605  ;  Humphries  vs.  Mooney,  5  Colo.  283  ; 
Sword  vs.  Wickersham,  29  Kan.  746;  Riker  vs.  Corn- 
well,  113  N.  Y.  115;  State  vs.  Lee,  21  Ohio  St.  662; 
Spinning  vs.  Home  Bldg.,  etc.  Assoc.,  26  Ohio  St.  483; 
Coppage  vs.  Hutton,  124  Ind.  401 ;  Indianapolis  Fur- 
nace, etc.  Co.  vs.  Herkimer,  46  Ind.  142. 

It  sometimes  happens  in  taking  acknowledgments  that  the 
name  of  the  person  is  left  blank.  This  fact  does  not  render 
the  certificate  invalid  if  it  can  in  any  way  be  supplied  from 
the  instrument. 


INCORPORATION     OF     COMPANIES  279 

Place  for  name  of  grantor  left  blank.     A  certificate  in 

these  or  equivalent  words:     "Personally  came to  me 

known  to  be  the  identical  person  whose  name  is  affixed  to 
the  foregoing  instrument  as  grantor,"  etc.,  etc.,  the  grantor 
being  nowhere  in  the  certificate,  is  not  fatally  defective,  the 
name  being  supplied  by  reference  to  the  body  of  the  deed. 

Magness  vs.  Arnold,  31  Ark.  103;  Sanford  vs.  Bulkley, 
30  Com.  344;  Milner  vs.  Nelson,  86  Iowa  452;  Pickett 
vs.  Doe,  5  Smed.  &  M.  (Miss.)  470;  43  Am.  Dec.  523; 
Wilcoxon  vs.  Osborn,  77  Mo.  621. 

And  to  the  same  effect  are, — 

Livingston  vs.  Kettle,  6  111.  116;  41  Am.  Dec.  166;  Wise 

vs.  Postlewait,  3  W.  Va.  452. 

But  the  contrary  has  been  held  where  the  certificate  con- 
tained no  clause  identifying  the  grantor  as  the  person  ac- 
knowledging the  instrument. 

Hayden  vs.  Wescott,  11  Conn.  129;  Smith  vs.  Hunt,  13 

Ohio  260;  42  Am.   Dec.  201;   Lenehan   vs.  Akana,  6 

Hawaiian  538. 

And  it  has  been  held  that  a  certificate,  although  it  con- 
tains the  name  of  the  grantor,  is  fatally  defective  if  it  does 
not  appear  that  such  grantor  acknowledged  the  execution  of 
the  instrument.  Thus  an  acknowledgment  in  the  following 
form  is  invalid:  "personally  appeared  before  me  A.,  B.,  to 

me  known,  etc.,  and  acknowledged  that  executed 

the  said  deed." 

Buell  vs.  Irwin,  24  Mich.  145 ;  Huff  vs.  Webb,  64  Tex. 
284. 

§  208.     Variance  in  Name  Fatal  to  Acknowledgment. 

The  following  are  cases  in  which  variance  in  the  name  has 
been  held  fatally  defective. 

Deed  executed  by  "McKewin,"  acknowledged  by  "Mc- 
Kinnie." 

Jones  vs.  Parks,  22  Ala.  446,  following  Dubose  vs. 
Young,  10  Ala.  365. 

Deed  signed  by  "F.  W.  Chandler,"  acknowledgment  made 
by  "T.  W.  Chandeler." 

Carleton  vs.  Lombardi,  81  Tex.  355. 


280  INDUSTRIAL     CORPORATIONS 

Instrument  signed  by  "F.  M.  McKezie,"  it  having  been 
purported  to  have  been  signed  by  "F.  M.  McKinzie." 

McKinzie  vs.  Stafford,  (Tex.  Civ.  App.,  1894)  27  S.  W. 
Rep.  790. 

"James  Butler"   acknowledging  the   execution   of  a  deed 
signed  by  and  purporting  to  be  the  act  of  "Jonas  Butler." 
Stephens  vs.  Motl.,  81  Tex.  115. 

Acknowledgment    purporting    to    have    been     made    by 
. Murray  without  any  other  designation  of  the  per- 
son ;  insufficient  to  convey  the  title  to  Jacob  Murray. 
Hiss.  vs.  McCabe,  45  Md.  77. 

"Geo.  H.  Crane,"  known  to  the  notary  to  be  the  signer 
and  sealer  of  deed,  in  acknowledging  the  same,  is  not  suf- 
ficient proof  of  execution  where  the  deed  is  signed  "Geo.  H. 
Case." 

Heil  vs.  Redded,  38  Kan.  255. 

Deed  purporting  to  be  by  "Hiram  S.,"  signed  by  "Harmon 
S.,"  inadmissible. 

Boothroyd    vs.    Engles,    23    Mich.    19;    Middleton    vs. 
Findla,  25  Cal.  76;  Hommel  vs.  Devinney,  39  Mich.  522. 

§  209.     Omissions  from  Certificate  Held  Fatal  to  Acknowl- 
edgment. 

The  following  omissions  from  the  certificate  have  been 
held  fatally  defective. 

"Known"  after  "personally." 

Tully  vs.  Davis,  30  111.  103;  83  Am.  Dec.  179. 

"Known"  in  "personally  appeared  C.  A.  D.,  known  to  be 
the  individual,"  etc. 

Woolf  vs.  Epgarty,  6  Cal.  224;  65  Am.  Dec.  509;  McKie 
vs.  Anderson,  78  Tex.  207. 

Omission  of  "personally  known"  renders  the  certifi- 
cate partially  defective. 

Gould  vs.  Woodward,  4  Greene  (Iowa)  82. 


INCORPORATION     OF     COMPANIES  281 

"Acknowledged"  where  no  equivalent  word  was  used. 
Bryan  vs.  Ramirez,  8  Cal.  461 ;  68  Am.  Dec.  340 ;  Stan- 
ton  vs.  Button,  2  Conn.  527;  Pendleton  vs.  Button,  3 
Conn.  406;  Cabell  vs.  Grubbs,  48  Mo.  353 ;  McDaniel  vs. 
Needham,  61  Tex.  269;  Virginia  Coal,  etc.  Co.  vs.  Rober- 
son,  88  Va.  116;  Short  vs.  Conlee,  28  111.  219. 

"Separately"  in  "separately  and  apart." 

Dewey  vs.  Campau,  4  Mich.  565 ;  Comp.  Belo  vs.  Mayes, 
79  Mo.  67. 

'Private"  in  "private  examination  separate  and  apart  from 
her  husband,"  although  the  other  words  were  used. 
Sibley  vs.  Johnson,  1  Mich.  380. 

"Explained"  in  "the  said  instrument  having  been  fully 
.explained  to  her." 

Moores  vs.  Linney,  2  Tex.  Civ.  App.  293. 

"Signed"  in  "signed,  sealed,  and  delivered." 
Smith  vs.  Elliott,  39  Ttex.  201. 

"Sealed  and  delivered"  in  "signed,  sealed,  and  delivered." 
Toulmin  vs.  Heidelberg,  32  Miss.  268;  Robinson  vs. 
Noel,  49  Miss.  253;  Comp.  Barton  vs.  Morris,  15  Ohio 
408. 

"The  within  named"  and  "with  whom  I  am  personally 
acquainted." 

Fall  vs.  Roper,  3  Head  (Tenn.)  485. 

"Ill-usage"  in  the  certificate  of  a  married  woman's  ac- 
knowledgment, although  she  acknowledged  the  instrument 
"of  her  own  free  will,  and  not  through  any  threats  of  her  said 
husband  or  fear  of  his  displeasure." 

Hawkins  vs.  Burress,  1  Har.  &  J.  (Md.)  513. 

"Fear"  in  the  certificate  of  a  married  woman's  acknowl- 
edgment where  no  equivalent  words  were  used.  The  defect 
was  cured  by  statute. 

Hollingsworth  vs.  M'Donald,  2  Har.  &  J.  (Md.)  230;  3 

Am.  Dec.  545. 

"He"  in  "acknowledged  that  he  signed." 

Buell  vs.  Irwin,  24  Mich.  152;  Huff  vs.  Webb,  64  Tex. 


282  INDUSTRIAL     CORPORATIONS 

284;  Stanton  vs.  Button,  2  Conn.  527;  Byran  vs. 
Ramirez,  8  Cal.  401 ;  68  Am.  Dec.  340. 

"Purposes"  in  "consideration  and  purposes." 
Ford  vs.  Burks,  37  Ark.  91. 

A  certificate  failing  to  show  that  the  grantor  acknowledged 
the  deed  for  the  consideration  and  purposes  therein  expressed 
is  void. 

Conner  vs.  Abbott,  35  Ark.  365  ;  Wright  vs.  Graham, 
42  Ark.  140;  Comp.  as  to  law  in  Texas,  Stephens  vs. 
Motl.,  81  Tex.  115. 

But  while  such  an  omission  is  fatal  to  the  acknowledg- 
ment, if  the  execution  of  the  deed  is  otherwise  proved  at  the 
trial,  it  is  admissible  in  evidence  notwithstanding  the  defective 
acknowledgment. 

Griesler  vs  McKennon,  44  Ark.  517. 
"For  the  purposes  therein  set  forth." 

Jacoway  vs.  Gault,  20  Ark.  190;  73  Am.  Dec.  494;  Little 
vs.  Dodge,  32  Ark.  453;  Shryock  vs.  Cannon,  39  Ark. 
434;  Currie  vs.  Kerr,  11  Lea.  (Term.)  138. 

"Without  compulsion  or  constraint  from  her  husband." 
Menees  vs.  Johnson,  12  Lea.  (Tenn.)  561. 

"Voluntarily"  in  certificate  of  wife's  acknowledgment,  al- 
though similiar  words  were  used. 

Laird  vs.  Harris,  12  Heisk.  (Tenn.)  243. 

"Voluntarily"  in  "his  voluntary  act  and  deed,"  where  the 
statute  requires  that  word  be  used. 

Wickersham  vs.  Reeves,  1  Iowa  413;  Newman  vs.  Sam- 
uels, 17  Iowa  528;  Spitznagle  vs.  Vanhessch,  13  Neb. 
338. 

"Having  been  examined"  in  a  certificate  reciting  "came  the 
feme  covert  and  privately  and  apart  from  her  husband,  and 
acknowledged." 

Ellett  vs.  Richardson,  9  Baxt.  (Tenn.)  293. 
"Without  the  hearing  of"  where  the  certificate  recited  that 
the  wife  was  examined  "separate  and  apart  from"  her  husband. 
Butterfield  vs.  Beall,  3  Ind.  203. 


INCORPORATION     OF    COMPANIES  283 

A  certificate,  "and  the  said  ....  wife  of  the  said  ....  hav- 
ing been  by  me  examined,  .  .  .  and  that  she  do  ....  not 
wish  to  retract  the  same.  Given  under  my  hand  and  ....  seal," 
etc.,  the  names  of  the  grantors  appearing  in  the  beginning 
of  the  certificate,  is  fatally  defective  and  can  not  afterward 
be  amended  by  the  officer. 

Comp.    Donahue  vs.   Mills,  41    Ark.   421 ;   Merritt   vs. 

Yates,  71  111.  636;  22  Am.  Rep.  128. 

§  210.     Certificate   of  Acknowledgment   Can   Not  be   Aided 
by  Parol. 

It  is  the  settled  law  applicable  to  certificates  of  acknowl- 
edgments that  a  certificate  of  acknowledgment  can  not  be 
aided  by  parol  testimony. 

Ross  vs.  M'Lung,  6  Pet.  (U.  S.)  283;  Scott  vs.  Simons, 
70  Ala.  352;  Cox  vs.  Holcomb,  87  Ala.  589;  13  Am.  St. 
Rep.  79;  Pendleton  vs.  Button,  3  Conn.  406;  Hayden  vs. 
Wescott,  11  Conn.  129;  Russell  vs.  Rumsey,  35  111.  362; 
Ennor  vs.  Thompson,  46  111.  214;  Lindley  vs.  Smith,  46 
111.  523;  O'Ferrall  vs.  Simplot,  4  Greene  (Iowa)  162; 
4  Iowa  381 ;  Barnett  vs.  Shackleford,  6  J.  J.  Marsh. 
(Ky.)  532;  22  Am.  Dec.  100;  Elwood  vs.  Klock,  13  Barb. 
(N.  Y.)  50;  Silliman  vs.  Cummins,  13  Ohio  116;  Wat- 
son vs.  Bailey,  1  Binn.  (Pa.)  470;  2  Am.  Dec.  462; 
Jourdan  vs.  Jourdan,  9  S.  &.  R.  (Pa.)  268;  11  Am.  Dec. 
742;  Barnett  vs.  Barnett,  15  S.  &  R.  (Pa.)  72;  16  Am. 
Dec.  516;  Spencer  vs.  Reese,  165  Pa.  St.  158;  Harrison- 
burg  First  Nat.  Bank  vs.  Paul,  75  Va.  594 ;  40  Am.  Rep. 
740;  Wise  vs.  Postlewiat,  3  W.  Va.  452;  Leftwich  vs. 
Neal,  7  W.  Va.  569 ;  Robinson  vs.  Noel,  49  Miss.  253. 

§211.    Amotion  of  Members. 

A  corporation  has  the  power  to  expel  members  from  its 
body  upon  three  grounds:  First,  when  a  member  is  guilty 
of  such  an  infamous  crime  as  would  unfit  him  to  associate  with 
honorable  and  respectable  men. 

Second,  when  an  offense  is  committed  by  a  member  against 
his  duty  as  a  corporator.  In  such  case,  however,  he  must  be 
tried  and  convicted  by  the  corporation. 


284  INDUSTRIAL     CORPORATIONS 

Third,  for  offenses  compounded  of  the  two  first  mentioned. 
Leech  vs.  Harris,  2  Brewst.  571 ;  People  vs.  Chicago 
Board  of  Trade,  45  111.  112;  Smith  vs.  Smith,  3  Desaus, 
Eq.  557;  People  vs.  N.  Y.  Com.  Ass.,  18  Abb.  Pr.  271; 
People  vs.  Medical  Soc.,  24  Barb.  570;  People  vs.  Fore 
Underwriters,  7  Hun.  248;  State  vs.  Chamber  of  Com- 
merce, 20  Wis.  63. 

Before  a  member  of  a  corporation  can  be  expelled  by  its 
members  for  an  infamous  crime,  the  member  must  have  been 
tried  and  convicted  by  a  jury  of  his  peers  and  according  to  the 
laws  of  the  land. 

Commw.  vs.  St.  Patricks  Soc.,  2  Binn.  448;  Commonw. 
vs.  Guardians  of  Poor,  6  Serg.  &  R.  469 ;  and  see  Soc. 
for  Visitation  of  Sick  vs.  Meyer,  52  Pa.  St.  125. 

An  expulsion  of  the  member  does  not  affect  his  right  in 
the  franchise  nor  can  his  private  property  be  taken,  that  is 
his  stock  and  interest  in  the  corporation,  nor  does  he  forfeit 
his  right  in  the  corporation  thereby  as  to  his  private  property, 
unless  such  power  has  been  expressly  conferred  by  the  charter. 
Commonw.  vs.  St.  Patrick's  Soc.,  2  Binn.  448;  Com- 
monw. vs.  Guardians  of  Poor,  6  Serg.  &  R.  469;  see 
Soc.  for  Visitation  of  Sick  vs.  Meyer,  52  Pa.  St.  125 ; 
Evans  vs.  Phila.  Club.  50  Pa.  St.  107. 

And  when  the  right  of  expulsion  exists  or  there  is  suffi- 
cient grounds  therefor,  it  can  not  be  exercised  by  the  other 
members  of  the  corporation  in  an  arbitrary  or  summary  man- 
ner, but  must  be  done  by  fair  and  important  trial  and  the 
party  charged  should  have  every  opportunity  to  be  heard. 

People  vs.  St.  Franciscus  Ben.  Soc.,  24  How  Pr.  216; 
People  vs.  Sailor's  Snug  Harbor,  5  Abb.  Pr.  N.  S.  119; 
54  Barb.  532;  Southern  Plank  Road  Co.  vs.  Hixon,  5 
Ind.  165;  State  vs.  Adams,  44  Mo.  570;  White  vs. 
Brownwell,  2  Daly  329;  Sibley  vs.  Carteret  Club,  40  N. 
J.  L.  295. 

An  incorporated  association  can  not  use  its  power  of  ex- 
pulsion for  purposes  of  personal  or  private  revenge,  or  make 
it  the  instrument  of  religious  intolerance  or  political  proscrip- 
tion or  disrepute. 


INCORPORATION     OF     COMPANIES  285 

State  vs.  Georgia  Med.  Sec.,  38  Ga.  608 ;  People  vs.  St. 
Franciscus  Ben.  Soc.,  24  How.  Pr.  216;  and  see  People 
vs.  Farrington,  22  How.  Pr.  294;  Roehler  vs.  Mechanic's 
Aid  Soc.,  22  Mich.  86. 

Strictly  speaking,  the  term  "amotion"  applies  to  the  of- 
ficers of  a  corporation,  while  the  term  used  to  indicate  the 
removal  or  expulsion  of  mere  members  is  "disfranchisement." 
2  Kent.  Comm.  298. 

"It  is  absolutely  essential  to  the  validity  of  the  suspension 
or  expulsion  of  a  member  of  an  incorporated  society  that  the 
accused  should  be  notified  of  the  charges  against  him,  and  of 
the  time  and  place  set  for  their  hearing;  that  the  accusing  body 
should  proceed  upon  inquiry  and  consequently  upon  evidence ; 
and  that  the  accused  should  have  a  fair  opportunity  of  being 
heard  in  his  defense." 

1  Thomp.  on  Corp.,  sec.  881. 

The  corporation,  or  its  authorized  board  that  makes  in- 
quiries into  the  charges  against  a  member,  acts  in  a  quasi 
judicial  capacity  and  must  confine  itself  to  the  powers  vested 
in  it.  It  must  pursue  remedies  prescribed  by  its  laws,  and 
such  laws  must  not  be  in  violation  of  the  laws  of  the  land, 
nor  violate  any  inalienable  right  of  the  member,  and  if  it 
keeps  itself  within  these  bounds,  its  judgment  will  be  con- 
clusive, otherwise  it  will  be  void. 

Otto  vs.  Union,  75  Cal.  308;  17  Pac.  217;  Com.  vs.  Pike 
Beneficial  Soc.,  8  Watts  &  S.  (Pa.)  250;  Burt  vs.  Lodge, 
66  Mich.  85 ;  33  N.  W.  13 ;  Robinson  vs.  Lodge,  86  111. 
598;  Pitcher  vs.  Board  of  Trade,  121  111.  412;  13  N.  E. 
187. 

A  court  of  equity  will  supervise  over  such  quasi  judicial 
inquisition,  and  they  will  decide  whether  there  were  sufficient 
grounds  for  expulsion  or  whether  there  has  been  a  lawful  ex- 
ercise of  the  power  vested  in  such  bodies,  and  they  will  in- 
terfere if  there  was  not  sufficient  cause  to  warrant  the  judg- 
ment of  the  quasi  judicial  body,  or  if  the  member  has  been 
denied  substantial  justice  or  where  he  has  been  denied  a  fair 
and  impartial  trial  or  if  the  action  is  malicious. 

Otto  vs.  Union,  75  Cal.  308;   17  Pac.  217;  Savannah 


286  INDUSTRIAL     CORPORATIONS 

Cotton  Exchange  vs.  State,  54  Ga.  668;  Com.  vs.  Pike 
Beneficial  Soc.,  8  Watts  &  S.  (Pa.)  250;  Burt  vs.  Lodge, 
66  Mich.  85;  33  N.  W.  13;  Robinson  vs.  Lodge,  86  111. 
598;  Pitcher  vs.  Board  of  Trade,  121  111.  412;  13  N.  E. 
187. 

A  writ  of  mandamus  is  a  proper  remedy  to  compel  re- 
instatement of  an  expelled  member. 

1  Thomp.  Corp.,  sec  904;  State  vs.  Chamber  of  Com- 
merce, 20  Wis.  63 ;  State  vs.  Milwaukee  Chamber  of 
Commerce,  47  Wis.  670;  3  N.  W.  760;  Otto  vs.  Union, 
75  Cal.  308;  17  Pac.  217;  Black  and  W^hite  Smith  Soc. 
vs.  Vandyke,  2  W.  Hort.  (Pa.)  309. 

§  212.     Capital  Stock  and  Capital. 

These  words  are  often  used  as  language  interchangeable 
in  their  meaning,  but  such  is  not  true  in  legal  significance. 
Capital  stock  is  the  amount  received  by  the  corporation  in 
money,  property,  or  money's  worth  of  something,  from  the 
stockholders,  and  remains  the  same  throughout  the  life  of 
the  corporation,  unless  changed  by  legislative  enactment. 

Christensen  vs.  Eno,  106  N.  Y.  97;  12  N.  E.  648;  State 
vs.  Morristown  Fire  Assn.,  23  N.  J.  Law  195 ;  Williams 
vs.  Telegraph  Co.,  93  N.  Y.  152,  188;  Barry  vs.  Ex- 
change Co.,  1  Sandf.  Ch.  (N.  Y.)  280. 

The  capital  of  a  corporation  is  a  broader  term  and  may 
change  as  to  the  substance  designated. 

It  includes  everything  in  the  shape  of  property  that  the 
corporation  owns  or  possesses. 

If  a  Corporation  of  $10,000  capital  stock  make  a  profit  of 
$5,000  more,  the  corporation  will  then  have  a  "capital"  of 
$15,000;  whether  a  corporation  make  or  lose,  what  it. owns  or 
possesses  is  the  "capital." 

Christiansen  vs.  Eno,  106  N.  Y.  97;  12  N.  E.  648. 

"The  word  capital  is  unambiguous.  It  signifies  the  actual 
estate,  whether  in  money  or  property,  which  is  owned  by  an 
individual  or  a  corporation.  In  reference  to  a  corporation,  it 
is  the  aggregate  of  the  sum  subscribing  and  paid  in,  or  secured 
to  be  paid  in,  by  the  shareholders,  with  the  addition  of  all 
gains  or  profits  realized  in  the  use  and  investment  of  those 


INCORPORATION     OF     COMPANIES  287 

sums  or  if  losses  have  been  incurred,  then  it  is  the  residue 

after  deducting  such  losses." 

People  vs.  Commissioners  of  Texas,  etc.,  for  the  City 
and  County  of  New  York,  23  N.  Y.  192,  219. 

§  213.     Subscriptions. 

A  subscription  to  the  capital  stock  of  a  corporation  may 
be  made  like  any  other  contract,  in  as  many  different  ways  as 
the  contracting  parties  may  see  fit  to  express  their  intention 
to  subscribe,  and  whenever  that  intent  is  clearly^  expressed,  it 
will  be  held  to  be  sufficient  subscription.  If  the  intention  to 
subscribe  is  clear,  it  matters  very  little  about  the  form,  as  the 
courts  do  not  sacrifice  substance  to  form,  and  formal  rules  are 
for  the  most  part  disregarded. 

Ventura,  etc.  Ry.  vs.  Ccllins,  46  Pac.  Rep.  297  (see  L.)  ; 
Blunt  vs.  Walker,  11  Wis.  334,  349;  Fry  vs.  Lexington, 
etc.  R.  R.,  2  Mete.  (Ky.)  314;  Wellersburg,  etc.  Co.  vs. 
Young,  12  Md.  476 ;  Gill  vs.  Kentucky,  etc.  Co.,  7  Bush 
(Ky.)  635;  Oler  vs.  Baltimore,  etc.  R.  R.,  41  Md.  583; 
Schaeffer  vs.  Missouri,  etc.  Co.,  46  Mo.  248;  Sanger  vs. 
Upton,  91  U.  S.  56;  Upton  vs.  Tribilcock,  91  U.  S.  45; 
Wheeler  vs.  Millar,  90  N.  Y.  353;  Hamilton,  etc.  Co.  vs. 
Rice,  7  Barb.  157;  Dorris  vs.  French,  4  Hun.  292;  Bos- 
ton, etc.  R.  R.  vs.  Wellington,  113  Mass.  79;  Ex.  Parte 
Besley,  2  Mac.  &  G.  176;  Clark  vs.  Farrington,  11  Wis. 
306;  Jewell  vs.  Rock  River  Paper  Co.,  101  111.  57; 
Haynes  vs.  Brown,  36  N.  H.  545 ;  Chaffin  vs.  Cummings, 
37  Me.  76;  Chester  Glass  Co.  vs.  Dewey,  16  Mass.  94; 
Griswold  vs.  Seligman,  72  Mo.  110;  Boggs  vs.  Olcott, 
40  111.  303;  Musgrave  vs.  Morrison,  54  Md.  161; 
Phoenix,  etc.  Co.  vs.  Badger,  67  N.  Y.  294;  S.  C,  6  Hun, 
293;  Palmer  vs.  Lawrence,  3  Sandf.  161;  Philadelphia, 
etc.  R.  R.  vs.  Cowell,  28  Pa.  St.  329;  Cheltenham,  etc. 
Ry.  vs.  Daniel,  2  Q.  B.  281  ;  West  Cornwall  Ry.  vs. 
Mowatt,  15  Q.  B.  521 ;  Lord  St.  Leonards  in  Spackman 
vs.  Evans,  L.  R.  3  H.  L.  Cas.  171,  197;  Herrison  vs. 
Heathorn,  6  Man.  &  G.  81 ;  Ness  vs.  Angas,  3  Exch. 
805 ;  Ness  vs.  Armstrong  4  Exch.  21 ;  Moss  vs.  Steam 
Gondola  Co.,  17  C.  B.  180;  Bailey  vs.  Universal,  etc. 
Assoc.,  1  C.  B.  (N.  S.)  557;  Holland  vs.  Duluth,  etc. 
Co.,  65  Minn.  324. 

The  question  whether  the  subscription  to  the  capital  stock 


288  INDUSTRIAL     CORPORATIONS 

of  a  corporation  can  be  entered  into  by  parol  has  been  de- 
cided both  in  the  affirmative  and  in  the  negative,  the  better 
opinion  and  the  weight  of  authority  holding  that  a  contract 
of  subscription  entered  into  by  parol  is  legal  and  binding. 
Where  an  individual  was  present  at  a  corporate  meeting  and 
directed  the  secretary  to  subscribe  certain  stock  and  the  sec- 
retary did  so,  making  out  the  subscription  on  a  loose  sheet 
of  paper,  the  court  held  the  subscriber  bound  to  his  subscrip- 
tion. The  court  -also  held  the  corporate  records  reciting 
the  facts  were  competent  to  show  an  acceptance  on  the  part 
of  the  subscriber,  although  the  records  were  made  out  sub- 
sequently to  the  subscription  referred  to. 

Colfax  Hotel  Co.  vs.  Lyon,  69  Iowa  683. 

A  verbal  subscription  is  sufficient.  The  statute  of  frauds 
does  not  apply. 

Bullock  vs.  Falmouth,  etc.  Co.,  85  Ky.  124;  Taber  vs. 
Anglo-American  Assoc.,  32  S.  W.  Rep.  602  (Ky.)  ; 
Shellenberger  vs.  Patterson,  168  Pa.  St.  30;  York  Park 
Bldg.  Assoc.  vs.  Barnes,  39  Neb.  834;  Cookney's  Case, 
3  de  G.  &  J.  170. 

Even  though  the  charter  provides  for  the  opening  of  cor- 
porate books,  still  a  subscription  on  a  memorandum  or  a  sheet 
of  paper  is  held  sufficient. 

Buffalo,  etc.  R.  R.  vs.  Gifford,  87  N.  Y.  294;  Brownlee 
vs.  Ohio,  etc.  R.  R.,  18  Ind.  68;  McClelland  vs.  Whitely, 
15  Fed.  Rep.  322;  State  vs.  Beck,  81  Ind.  501  ;  Iowa,  etc. 
R.  R.  vs.  Perkins,  28  Iowa  281 ;  Hamilton,  etc.  Co.  vs. 
Rice,  7  Barb.  157;  Cf.  Bucher  vs.  Dillsburg,  etc.  R.  R. 
76  Pa.  St.  306;  Hawley  vs.  Upton,  102  U.  S.  314;  Mexi- 
can Gulf  Ry.  vs.  Viavant,  6  Rob.  (La.)  305;  Ashtabula, 
etc.  R.  R.  vs.  Smith,  15  Ohio  St.  328. 

Where  a  statute  requires  that  the  signers  of  the  charter 
or  Articles  of  Incorporation  shall  insert  the  number  of  shares 
opposite  their  names  subscribed  for  by  them,  is  a  sufficient 
subscription  to  bind  the  subscribers. 

Phoenix,  etc.  Co.  vs.  Badger,  67  N.  Y.  294;  S.  C,  6  Hun. 

293 ;    Nulton    vs.    Clayton,   54   Iowa   425 ;    Herries   vs. 

Wesley,  13  Hun.  492. 


INCORPORATION     OF     COMPANIES  289 

It  has  been  held,  however,  that  this  omission  of  any  one 
of  the  subscribers  or  any  one  of  the  signers  of  the  articles 
will  be  a  good  defense  to  an  action  against  him  by  the  cor- 
poration to  enforce  the  subscription. 

Coppage  vs.  Hutton,  124  Ind.  401. 

It  is  not  necessary  that  the  subscription  be  to  the  Articles 
of  Incorporation. 

San  Joaquin,  etc.  Co.  vs.  Beecher,  101  Cal.  70. 

A  failure  to  acknowledge  the  Articles  of  Incorporation  is 
a  good  defense  to  a  subscriber  to  them  who  are  sued  upon 
their  subscription. 

Greenbrier  Ind.  Exposition  vs.  Rhodes,  37  W.  Va.  738. 

A  subscription  contract,  like  any  other  contract,  may  be 
waived,  cancelled  or  dissolved  by  the  consent  of  the  parties 
interested.  The  interested  parties  are  the  subscriber  himself, 
the  other  stockholders,  and  the  corporate  creditors  existing 
at  the  time  of  cancellation,  and  in  such  case  the  corporate 
creditors  have  no  power  to  release  a  subscriber,  unless  such 
authority  is  delegated  to  them  by  the  statute  or  the  charter 
or  the  by-laws  of  the  incorporation. 

Bedford  R.  R.  vs.  Bowser,  48  Pa.  St.  29;  La  Fayette, 
etc.  Corp.  vs.  Ryland,  80  Wis.  29;  Rider  vs.  Morrison, 
54  Md.  429;  Hughes  vs.  Antietam  Mfg.  Co.,  34  Md.  316; 
Ryder  vs.  Alton,  etc.  R.  R.,  13  111.  516;  Tuckerman  vs. 
Brown,  33  N.  Y.  297 ;  Re  Esparto  Trading  Co.,  L.  R.  12 
Ch.  D.  191 ;  Re  United  Service  Co.,  L.  R.  5  Ch.  App. 
707 ;  Re  London,  etc.  Coal  Co.,  L.  R.  5  Ch.  D.  525 ;  Re 
Argyle,  etc.  Co.,  54  L.  T.  Rep.  233 ;  Ex  parte  Fletcher. 
37  L.  J.  (Ch.)  49;  Addisons  Case,  L.  R.  5  Ch.  294; 
Spackman  vs.  Evans,  L.  R.  3  Ch.  L.  171 ;  Thomas's 
Case,  L.  R.  13  Eq.  437. 

In  such  a  case,  the  subscriber  can  not  obtain  a  cancella- 
tion of  his  subscription  except  by  unanimous  consent  of  the 
other  subscribers. 

Kidwelly  Canal  Co.  vs.  Raby,  2  Price  93 ;  Lake  Ontario, 
etc.  R.  R.  vs.  Mason,  16  N.  Y.  451,  463;  Hughes  vs. 
Antietam  Mfg.  Co.,  34  Md.  316;  Johnson  vs.  W abash, 
20 


290  INDUSTRIAL     CORPORATIONS 

etc.  Co.,  16  Ind.  389;  United  Soc.  vs.  Eagle  Bank,  7 
Conn.  456;  Bishop's  Fund  vs.  Eagle  Bank,  7  Conn.  476. 

In  such  a  transaction,  the  majority  rule  does  not  apply,  and 
a  majority  of  the  stockholders  can  not  refuse  to  proceed. 
Busey  vs.  Hooper,  35  Md.  15. 

§214.     Issuing  Stock. 

There  are  three  methods  of  issuing  stock :  First,  by  sub- 
scription payable  in  money ;  second,  by  subscriptions  payable 
in  property,  labor,  or  both ;  third,  by  a  stock  dividend.  The 
first  method  is  the  easiest  method  possible.  The  issue  of  stock 
at  the  present  time  for  property  or  labor  is  a  valid  transaction. 

Foreman  vs.  Bigelow,  4  Cliff.  508,  544;  S.  C.  9  Fed. 

Cas.  427,  441;  Searight  vs.  Payne,  6  Lea  (Tenn.)  283; 

Brant  vs.  Ehlen,  59  Md.  1 ;  Spargo's  Case,  L.  R.  8  Ch. 

App.  407,  412;  Ashuelot  Boot,   etc.   Co.  vs.   Hoit,  56 

N.  H.  548. 

The  question  whether  or  not  a  corporation  can  make  a  valid 
transfer  of  its  stock  for  any  other  character  of  property  some- 
times involves  the  question  whether  or  not  the  transaction  is 
fradulent;  and  like  any  other  contract,  if  it  contains  the  ele- 
ment of  fraud,  it  could  not  be  enforced,  or  would  be  invalid. 

"That  in  the  absence  of  fraud  an  agreement  may  ordinarily 
be  made  by  which  stockholders  can  be  allowed  to  pay  for  their 
shares  in  patents,  mines,  or  other  property,  to  which  it  is  not 
easy  to  assign  a  determinate  value,  appears  to  be  well  settled." 

New  Haven,  etc.  Co.  vs.  Linden  Spring  Co.,  142  Mass. 

349. 

Payment  for  shares  of  stock  may  be  in  anything  the  com- 
pany might  lawfully  purchase. 

"Payment  of  stock  subscriptions  need  not  be  in  cash,  but 
may  be  in  whatever,  considering  the  situation  of  the  corpora- 
tion, represents  to  that  corporation  a  fair,  just,  lawful,  and 
needed  equivalent  for  the  money  subscribed. 

"In  the  construction  of  railways,  a  great  deal  of  litigation 
has  arisen  as  to  what  a  railway  company  may  accept  in  pay- 
ment for  its  stock.  A  railway  company  may  accept  or  use  its 
stock  for  almost  anything  that  is  necessary  to  carry  out  and 
complete  its  railway. 


INCORPORATION     OF     COMPANIES  291 

"We  can  see  no  objection  whatever  to  a  railroad  company 
issuing  stock  and  taking  in  payment  materials  or  labor  or 
land  necessary  for  its  road." 

Clark  vs.  Farrington,  11  Wis.  306. 

As  to  payment  in  stock  for  construction  work,  see  also 
Wood,  Railways,  282. 

"The  corporation  had  a  right  to  accept  payment  of  stock- 
in  labor  or  materials,  in  damages  which  the  company  were 
liable  to  pay,  or  in  any  other  liability  of  the  company,  pro- 
vided these  transactions  were  entered  into  and  carried  out  in 
good  faith." 

Philadelphia,  etc.  R.  R.  vs.  Hichman,  28  Pa.  St.  318; 

Bedford  County  vs.  Nashville,  etc.  Ry.,  14  Lea  (Tenn.) 

525. 

Holding,  also,  that  thirty  years'  delay  in  demanding  the 
stock  is  no  bar  to  the  right.  To  the  same  effect,  payment  be- 
ing in  services. 

Kobogum  vs.  Jackson  Iron  Co.,  76  Mich.  498 

Payment  may  be  in  cross-ties. 

Ohio,  etc.  R.  R.  vs.  Cramer,  23  Ind.  490. 

Or  in  real  estate  and  services. 

Cincinnati,  etc.  R.  R.  vs.  Clarkson,  7  Ind.  595 

Or  in  services  or  materials. 

Phillips  vs.  Covington  Bridge  Co.,  2  Mete.  (Ky.)  219. 

One  railroad  having  power  to  consolidate  with  another 
may,  in  payment  therefor,  issue  stock  to  the  contractors  who 
are  constructing  the  latter. 

Branch  vs.  Jessup,  106  U.  S.  468. 

A  corporation  may  agree  to  give  $5,000  of  stock  to  one 
who  will  borrow  $15,000  for  it. 

Araphoe,  etc.   Co.  vs.   Stevens,   13   Colo.  534. 
A  contract  that  subscriptions  shall  be  payable  in  land  is 
illegal  by  statute  in  Alabama,  but  after  subscription,  payment 
in  land  may  be  allowed. 

Knox  vs.  Childersburg  Land  Co.,  86  Ala.  180:  Wash- 
burn  vs.  National,  etc.  Co.,  81  Fed.  Rep.  17. 


292  INDUSTRIAL     CORPORATIONS 

Promissory  notes  may  be  taken  in  payment  for  stock. 

Stoddard  vs.  Shetucket  Foundry  Co.,  34  Conn.  542 
(1868)  ;  Ogdensburg,  etc.  R.  R.  vs.  Wooley,  3  Abb.  Ct.  of 
App.  Dec.  398 ;  Magee  vs.  Badger,  30  Barb.  246 ;  Good- 
rich vs.  Reynolds,  31  111.  490;  Vermont  Central  R.  R. 
vs.  Clayes,  21  Vt.  30;  Hardy  vs.  Merriweather,  14  Ind. 
203 ;  Pacific  Trust  Co.  vs.  Dorsey,  72  Cal.  55. 

Where  stock  is  issued  in  payment  for  property,  labor  or 
contract  work,  there,  need  be  no  formality  of  a  previous  sub- 
scription. The  fact  that  the  charter  authorizes  the  opening 
of  the  books  for  subscription,  does  not  confine  the  disposition 
of  the  stock  to  that  method.  Any  other  mode  by  which  they 
see  fit  to 'allow  parties  to  become  stockholders  would  be 
right  and  proper. 

"If  a  railroad  company  could  sell  its  stock  for  the  right  of 
way,  for  lands  for  depot  purposes,  for  iron,  or  anything  essen- 
tial to  the  accomplishment  of  its  purpose,  it  might  do  so." 

Western  Bank  of  Scotland  vs.  Tallam,  17  Wis.  530; 
Clark  vs.  Farrington,  11  Wis.  306;  Reed  vs.  Hayt,  51 
N.  Y.  Super.  Ct.  121,  aff'd,  109  N.  Y.  659. 

In  Jackson  vs.  Traer,  64  Iowa  469,  the  court  said : — 

"We  have  seen  no  case  which'  recognizes  a  difference  be- 
tween those  stockholders  who  become  such'  in  pursuance  of 
a  written  agreement  and  those  who  become  such  by  the  mere 
acceptance  of  stock  issued  to  them." 

A  subscription  to  stock,  however,  is  payable  in  cash,  unless 
there  is  a  contract  to  the  contrary. 

Farwell  vs.  Great  West.  Tel.  Co.,  161  111.  522;  Dalton, 
etc.  vs.  Dalton,  66  L.  T.  Rep.  704. 

The  third  method  of  issuing  stock  is  by  a  stock  dividend. 
This  is  allowable  when  an  amount  of  cash  or  property  equal 
to  the  amount  of  the  par  value  of  the  stock  so  divided  is  added 
permanently  to  the  capital  stock  of  the  corporation.  A  stock 
dividend  can  not  be  made  unless  the  whole  of  the  capital  stock 
has  not  been  issued  or  when  it  has  been  increased.  Stock 
dividends  are  prohibited  by  legislative  enactments  in  some 
States,  and  unless  so  prohibited,  they  are  sustained  by  the 
courts. 


INCORPORATION     OF     COMPANIES  293 

Williams  vs.  Western  Union  Tel.  Co.,  93  N.  Y.  162,  188 
et  seq. ;  Dock  vs.  Schlichter,  etc.  Co.,  167  Pa.  St.  370 : 
Farwell  vs.  Great  Western  Tel  Co.,  161  111.  522,  a 
dictum ;  City  of  Ohio  vs.  Cleveland,  etc.  R.  R.,  6  Ohio 
St.  489;  Howell  vs.  Chicago,  etc.  R.  R.,  51  Barb.  378; 
Clarkson  vs.  Clarkson,  18  Barb.  646;  Simpson  vs. 
Moore,  30  Barb.  637 ;  Gordon  vs.  Richmond,  etc.  R.  R., 
78  Va.  501,  521 ;  Minot  vs.  Paine,  99  Mass.  101  ;  Boston, 
etc.  R.  R.  vs.  Commonwealth,  100  Mass.  399;  Deland 
vs.  Williams,  101  Mass.  71  ;  Rand  vs.  Hubbell,  115  Mass. 
461,  474;  Gibbons  vs.  Mahon,  4  Mackey.  130;  Jones 
vs.  Morrison,  31  Minn.  140;  Earp's  Appeal,  28  Pa.  St. 
368;  Wiltbank's  Appeal,  64  Pa.  St.  256;  Commonwealth 
vs.  Pittsburgh,  etc.  R.  R.,  74  Pa.  St.  83;  Brown  vs. 
Lehigh  Coal,  etc.  Co.,  49  Pa.  St.  270;  Commonwealth 
vs.  Cleveland,  etc.  Rx.  R.,  29  Pa.  St.  370;  Parker  vs.  Ma- 
son, 8  R.  I.  427;  State  vs.  Baltimore,  etc.  R.  R.,  6  Gill. 
(Md.)  363. 

§215.    Watered  Stock. 

The  issuing  of  shares  of  stock  as  fully  "paid  up,"  when 
the  same  .is  not  fully  paid  is  a  species  of  issuing  stock  called 
watered  stock.  A  share  of  stock  is  supposed  in  theory  to  be 
a  representation  of  its  face  value  in  some  kind  of  property 
that  has  been  paid  in  to  the  corporation.  The  company  is 
supposed  to  part  with  its  stock  and  receive  in  lieu  thereof 
something  equal  to  the  value  stated  on  the  face  of  the  stock, 
or  its  par  value.  In  Handley  vs.  Stutz,  139  U.  S.  417,  428,  the 
court  said : — 

"The  stock  of  a  corporation  is  supposed  to  stand  in  the 
pla.ce  of  actual  property  of  substantial  value,  and  as  being  a 
convenient  method  of  representing  the  interest  of  each  stock- 
holder in  such  property,  and  to  the  extent  to  which  it  fails 
to  represent  such  value  it  is  either  a  deception  and  fraud  upon 
the  public,  or  an  evidence  that  the  original  value  of  the  cor- 
porate property  has  become  depreciated.  .  .  .  If  it  be 
once  admitted  that  a  corporation  may  issue  stock  without  re- 
ceiving a  consideration  therefor,  and  where  it  does  not  rtpre- 
scnt  actual  or  substantial  value  in  corporate  assets,  there  is 
apparently  no  limit  to  the  extent  to  which  the  original  stock 
may  be  'watered,'  except  the  caprice  of  the  stockholders." 

It  is  said  in  Jeans,  Railw.  Prob.  311 : — 


294  INDUSTRIAL     CORPORATIONS 

"In  1872  the  difference  between  the  total  cost  of  American 
railways  and  their  equipment,  and  the  total  capital  of  the 
system  was  $85,250,000.  In  1884  this  sum  had  been  increased 
to  upward  of  $162,000,000.  In  1872  the  watered  capital 
amounted  to  an  average  of  about  $800  per  mile,  but  in  1884 
the  average  of  such  capital  was  only  $343  per  mile.  At  the 
end  of  1884  fully  ten  per  cent  of  the  total  capital  embarked 
in  American  lines  was  additional  to  the  actual  cost  of  the 
railways  and  their  equipment,  and  the  greater  part  of  it  may 
be  regarded  as  representing  'watered  stock.' 

"The  facilities  which  exist  for  the  properly  issued*  stock 
are  equally  open  to  the  sale  of  fictitiously  pajd-up  stock  until 
it  has  become  understood  that  railroad  and  business  corpora- 
tions will  make  these  issues  of  stock. 

"The  issue  is  generally  to  the  organizers  or  other  operators, 
in  ostensible  payment  for  property  or  construction  work.  It 
is  no  unusual  thing  for  a  newly  organized  railroad  corporation 
to  issue  to  a  construction  company  bonds  and  stock  whose 
par  value  is  many  times  the  value  of  the  construction  work. 
These  bonds  and  stock  are  then  sold  to  the  public  at  a  profit, 
large  or  small,  according  to  the  prospects  of  the  enterprise  and 
the  skill  of  the  manipulators.  Soon,  however,  default  is  made 
in  the  payment  of  the  interest  of  the  bonds,  and  this  is  fol- 
lowed by  corporate  insolvency,  foreclosure,  receivership,  and 
reorganization.  The  issue,  of  fictitiously  paid-up  stock  is  the 
device  of  corporate  promoters,  organizers,  and  manipulators 
in  carrying  out  their  plans  of  realizing  enormous  gains  from 
small  investments,  and  in  accumulating  great  fortunes  at  the 
expenses  of  the  public.  Occasionally,  too,  the  issue  is  made 
for*  the  purpose  of  concealing  large  and  unreasonable  profits. 
Which,  if  known,  might  cause  the  public  to  regulate  and 
diminish  the  source  of  income,  and  in  such  case,  a  stock  divi- 
dend is  resorted  to." 

In  Atkinson,  Distribution  of  Products  (2d  ed.,  1886),  p. 
259,  it  is  said  :— 

"The  elimination  of  what  has  been  called  'watered  stock 
and  bonds,'  against  which  the  silly  crusade  of  the  so-called 
anti-monopolists  has  been  directed,  is  therefore  in  process  of 
accomplishment  by  .methods  far  more  potent  than  any  possible 
legislative  acts,  namely,  by  the  triple  competition  of  water- 
ways. Second,  the  competition  of  one.  railway  with  another. 
Third,  the  competition  of  product  with  product  in  the  greater 
markets  of  the  world." 


INCORPORATION     OF     COMPANIES  295 

Mr  Simon  Sterne,  in  the  Cyclopedia  of  Political  Science, 
Political  Economy,  and  United  States  History,  vol.  3,  527, 
gives  an  illustration  of  how  watered  stocks  and  bonds  are 
issued,  as  follows : — 

"A  line  from  one  point  to  another,  say  a  distance  of  one 
hundred  miles,  is  surveyed.  It  is  ascertained  that  it  will  cost 
about  $15,000  a  mile  to  build,  including  acquisition  of  land, 
and  about  $5,000  a  mile  to  equip,  a  total  of  $20,000  a  mile. 
Application  is  then  made  for  town  and  county  aid,  which  aid  is 
generally  represented  by  investment  in  the  stock  of  the  road. 
The  first  purpose  is  to  give  as  little  as  possible  in  the  way 
of  value  in  return  for  such  money  aid,  and  it  is  therefore  nec- 
essary to  interpose  between  the  stock  and  the  property  a 
sufficient  number  of  mortgages  to  make  prospective  value  of 
the  stock  of  little  or  no  value.  A  construction  company  is 
then  organized,  which  takes  the  town  and  county  aid  as  part 
of  its  capital ;  and  the  railway  corporation,  instead  of  making 
its  contract  on  the  basis  of  cash,  issues  to  the  construction 
company  say  first  mortgage  bonds  of  $20,000  a  mile,  or  pos- 
sibly $25,000  a  mile;  second  mortgage  bonds  of  $20,000  a  mile, 
and  stock  of  an  equal  value,  making  a  total  capitalization 
of  $65,000  a  mile,  instead  of  $20,000,  at  which  the  road  could 
be  constructed.  The  construction  company  is  composed  gen- 
erally, directly  or  indirectly,  of  the  officers  of  the  road  and 
their  friends,  who  built  the  road  upon  the  basis  of  cash  ob- 
tained by  negotiating  through  bankers  the  securities  repre- 
sented by  the  bond  issues  of  the  railroad  company ;  they  ac- 
quire the  stock  for  little  or  nothing,  and  also  frequently  a 
large  proportion,  if  not  the  whole,  of  the  second  mortgage ; 
and  in  prosperous  times  they  may  succeed  in  building  and 
equipping  the  road  on  the  issue  of  the  bonds  secured  by  the 
first  mortgage  alone.  By  this  system  the  road  comes  into 
existence  laboring  under  the  necessity  to  earn,  over  and  above 
operating  expenses,  interest  on  a  funded  debt  about  double 
the  cost  of  the  enterprise,  and,  if  possible,  to  earn  dividends 
on  the  stock  beyond  that  sum." 

§  216.     Three  Methods  of  Issuing  Watered  Stock. 

There  are  three  -methods  of  issuing  watered  stock.  First, 
where  the  stock  is  issued  for  an  amount  of  money  less  than 
the  par  value  of  the  stock,  and  the  certificate  purporting  on  its 
face  that  the  full  value  has  been  paid.  Second,  for  property 
or  labor  at  an  over-valuation. 


296  INDUSTRIAL     CORPORATIONS 

Third,  by  a  stock  dividend,  the  equivalent  par  value  of 
which  has  not  been  permanently  added  to  the  capital  stock. 
Nothing  can  be  said  in  mitigation  of  the  practice  of  issuing 
watered  stock  except  that  possibly  it  would  be  impossible  in 
many  instances  to  divine  the  simulated  or  partly  simulated 
from  the  real  enterprise,  owing  to  the  very  fact  of  the  im- 
possibility of  precisely,  in  the  first  place,  deciding  the  value 
of  a  given  property,  for  that  it  might  be  high  or  worth  more 
to  one  than  to  another.  For  illustration,  take  a  mining  prop- 
erty, a  mere  prospect,  it  may  not  be  worth  one  dollar ;  it  may 
be  worth  a  hundred  millions.  In  such  case,  how  is  the  capital 
stock  going  to  be  fixed? 

If  incorporated,  it  must  be  put  at  something,  and  where? 
Who  knows  ?  Who  is  going  to  decide  ?  The  elements  of  un- 
certainty in  the  value  renders  it  impossible  to  fix  the  exact 
capitalization  of  the  company  at  its  precise  worth ;  hence,  the 
judgment  of  those  who  do  fix  the  value  on  the  property  and 
who  also  fix  the  capital  stock  of  the  company,  at  the  same 
are  not  and  ought  not  to  be  chargeable  with  simulation  of  any 
kind. 

All  business  is  attended  with  the  element  of  uncertainty 
in  some  form,  and  this  must  be  true,  owing  to  the  perishable- 
ness  of  personal  property  following  the  natural  law  of  the 
eternal  passing  of  all  things.  It  may  also  be  said  that  when 
human  ingenuity  is  without  ability  to  duplicate  a  real  trans- 
action with  a  pretended  one,  the  stock  of  mankind  can  then  be 
said  to  be  well  "watered."  Watered  stock  is  not  per  se  illegal, 
unless  declared  so  by  express  enactment. 

Struges  vs.  Stetson,  1  Biss.  246;  S.  C.  23  Fed.  Cas.  311 ; 

Fosidck  vs.  Sturges,  1  Biss.  255 ;  S.  C.  9  Fed.  Cas.  501 ; 

Oilman,  etc.  R.  R.  vs.  Kelly,  77  111.  426;  Campbell  vs. 

Morgan,  4  Bradw.   (111.)    100;  Nicrosi  vs.  Irvine,  102 

Ala.  648. 

In  Scolville,  105  U.  S.  143,  153,  the  court  said,  about  non- 
full  paid  stock : — 

"It  is  conceded  to  have  been  the  contract  between  him  and 
the  company  that  he  should  never  be  called  upon  to  pay  any 


INCORPORATION     OF     COMPANIES  297 

further  assessments  upon  it  (the  stock).  The  same  contract 
was  made  with  all  the  other  shareholders,  and  the  fact  was 
known  to  all.  As  between  them  and  the  company,  this  was  a 
perfectly  valid  agreement.  It  was  n'ot  forbidden  by  the  char- 
ter or  by  any  law  or  public  policy." 

In  re  Ambrose,  etc.  L.  R.  Ch.  D.  390,  394,  395,  the  court 
said : — 

"It  seems  to  me  impossible  to  say  that,  however  wrong1 
the  transaction  was  in  respect  to  other  persons,  there  was 
anything  wrong  as  between  the  company  and  the  vendors." 

The  increase  of  stock  for  no  consideration  whatever  has 
been  sustained. 

Knapp  vs.  Publishers,  127  Mo.  53. 

Many  states  have  made  efforts  by  various  provisions  of 
their  constitutions  and  by  legislative  enactment  in  some  way 
to  prevent  the  issuing  of  watered  stock,  and  practically  it 
has  failed.  Mr.  Cook,  in  his  work  on  corporations,  says : — 

"Moreover,  the  bewildering  currents  of  conflicting  de- 
cisions, even  in  those  States  where  the  most  earnest  efforts 
are  made  to  enforce  the  constitutional  provisions,  leave  the 
investor  on  an  unknown  sea,  without  chart,  compass,  land- 
mark, or  pilot." 

It  is  believed  to  be  a  proper  deduction  from  the  review  of 
authorities  with  respect  to  watered  stock,  that  any  enter- 
prise may  be  launched  upon  the  judgment  of  those  who  pro- 
mote it,  and  their  judgment  as  to  the  value  of  the  property 
will  be  absolute,  and  the  investor's  remedy  is  his  ability  to 
discover,  which  he  always  may,  whether  the  stock  is  a  good 
investment  or  not.  This  he  may  usually  do  by  an  examina- 
tion of  the  company's  holdings.  Any  reasonable,  prudent 
business  man  can  discover  whether  the  stocks  are  beyond 
where  he  wishes  to  invest  or  not.  If  the  investor  discovers 
the  stock  does  not  represent  more  than  a  certain  per  cent 
of  the  face  value  of  the  stock,  still  he  can  buy  it  at  that  per 
cent — 10  per  cent,  25  per  cent,  50  per  cent,  or  whatever  the 
value  of  the  property  is  in  his  opinion  and  be  safe  in  his 
investment.  Property  is  now  so  largely  represented  by  stock- 
that  the  investor  is  forced  to  investigate  before  he  invests. 


298  INDUSTRIAL  CORPORATIONS 

§  216a     Fraud  in  Issue  of  Stock — Creditors. 

Creditors  may  get  their  own  if  they  can  show  fraud.  The 
Supreme  Court  of  Minnesota  explains  why  a  creditor  has  a 
better  right. 

"The  capital  of  a  corporation  is  the  basis  of  its  credit. 
It  is  a  substitute  for  the  individual  liability  of  those  who  own 
its  stock.  People  deal  with  it  and  give  it  credit  on  the  faith 
of  it.  They  have  a  right  to  assume  that  it  has  paid-in  capital 
to  the  amount  which  it  represents  itself  as  having;  and  if 
they  give  it  credit  on  the  faith  of  that  representation  and  if 
the  representation  is  false,  it  is  a  fraud  upon  them  ;  and  in 
case  the  corporation  becomes  insolvent,  the  law,  upon  the 
plainest  principles  of  common  justice,  says  to  the  delinquent 
stockholder,  'Make  that  representation  good  by  paying  for 
your  stock.'  It  certainly  can  not  require  the  invention  of  any 
new  doctrine  in  order  to  enforce  so  familiar  a  rule  of  equity. 
It  is  the  misrepresentation  of  fact  in  stating  the  amount  of 
capital  to  be  greater  than  it  really  is  that  is  the  true  basis 
of  the  liability  of  the  stockholders  of  such  cases  ;  and  it  follows 
that  it  is  only  those  creditors  who  have  relied,  or  who  can 
fairly  be  presumed  to  have  relied  upon  the  professed  amount 
of  capital,  in  whose  favor  the  law  will  recognize  and  enforce 
an  equity  against  the  holders  of  'bonus  stock.'  " 

Hasper  vs.  Northwestern  Manufacturing  Co.,  48  Minn. 

174;50Nev.  1117. 

The  true  rule  is  stated  by  the  same  court  in  Hastings 
Malting  Co.  vs.  Iron  Range  Brewing  Co.,  65  Minn.  28;  67  N. 
W.  652,  as  follows: — 

"Upon  principle  and  authority  a  corporation  may  in  good 
faith  issue  paid-up  shares  of  its  stock  for  the  purchase  of 
property  at  a  fair  valuation,  and  in  such  case  the  corporation 
and  its  creditors  are  bound  by  it." 

"In  the  practical  application  of  the  rule,  it  must  be  kept 
in  mind  that  fraud,  actual  or  constructive,  is  the  basis  of  the 
stockholders'  liability  to  the  creditor. 

"On  the  one  hand  the  value  of  the  property  is  to  be  deter- 
mined, not  from  subsequent  events,  but  as  of  the  time  of  the 
transaction,  and  from  the  nature,  situation,  and  condition 
of  the  property  as  they  honestly  appeared  to  the  parties  at  the 
time.  Although  there  was  in  fact  an  overvaluation  of  the 
property,  it  will  not  render  the  stockholders  liable  for  the 


INCORPORATION     OF     COMPANIES  299 

deficiency  if  it  was  the  result  of  an  honest  mistake  or  error 
of  judgment." 

Much  depends  upon  the  character  of  enterprise  in  which 
a  corporation  engages.  In  the  early  case  of  In  re  South 
Mountain  Mining  Co.  8  Sawyer  U.  S.  366  the  court  said: — 

"The  mode  of  forming  mining  corporations  is  well  known 
to  anybody.  A  prospector  finds,  as  he  supposes,  a  valuable 
mine.  It  requires  capital  to  work  it,  which  he  does  not  possess. 
He  goes  to  the  money  and  business  centers,  where  he  finds 
capitalists  accustomed  to  organize  corporations  for  the  de- 
velopment of  new  mines,  and  makes  such  arrangements  as  he 
can.  He  presents  such  evidence  of  the  value  of  his  mine 
as  he  has  obtained.  Little  is  known  of  the  real  value.  It  may 
be  worth  nothing,  and  it  may  be  worth  millions.  Parties  are 
found  willing  to  take  hold  of  the  enterprise.  They  agree 
to  incorporate  and  fix  the  capital  stock  at  some  purely  nominal 
amount,  and  divide  it  into  a  certain  number  of  shares,  cor- 
responding to  the  amount  of  capital  adopted.  The  owner  of 
the  mine,  for  an  agreed  number  of  shares  and  in  consideration 
of  the  promises  of  the  other  parties  to  assist  in  the  develop- 
ment of  the  mine,  conveys  the  mine  and  receives  for  it  the 
amount  of  stock  agreed  upon.  The  other  parties,  for  their 
services  in  organizing  and  managing  the  company  and  its 
business,  receive  a  large  portion  of  the  stock,  there  being 
usually  a  considerable  amount  of  stock  reserved  by  the  com- 
pany, which  is  put  upon  the  market  and  sold  for  such  price 
as  can  be  obtained,  to  raise  a  fund  to  secure  machinery  and 
develop  the  mine.  The  price  of  this  stock  is  of  course  deter- 
mined by  the  prospect  of  the  mine,  its  location,  and  its 
probable  richness,  and  confidence  of  the  public  reposed  in  the 
experience,  ability,  and  character  of  those  having  the  manage- 
ment. Mining  corporations  are  sni  generis.  They  are  organ- 
ized and  carried  on  upon  principles  wholly  different  from 
banking,  railroad,  insurance,  and  ordinary  commercial  cor- 
porations having  a  subscribed  capital  stock." 

For  a  very  instructive  case  see  Iron  Co.  et  al  vs.  Hays 
et  al  165,  Pa.  st.  489,  where  the  court  in  reversing  the  case 
said : — 

"We  should  agree  with  the  court  below  that  the  property 
was  sold  at  more  than  its  actual  value,  if  that  value  was  to 
be  determined  by  subsequent  results  rather  than  by  prospects 
as  they  appeared  at  the  time  of  sale.  But  if  the  parties  were 


300  INDUSTRIAL     CORPORATIONS 

mistaken  in  relation  to  its  value,  we  do  not  see  how,  in  the 
absence  of  any  averment  of  fraud  in  the  transaction,  the  sale 
can  be  disregarded  and  the  subscriptions  to  the  capital  stock- 
treated  as  unpaid.  The  proofs  show  that  they  were  paid 
exactly  in  accordance  with  the  agreement  under  which  they 
were  made,  and  until  that  agreement  is  attacked  as  fraudu- 
lent, the  creditors  stand  in  no  better  position  than  the  cor- 
poration itself.  The  decree  is  reversed  so  far  as  it  requires 
payment  of  the  stock  subscriptions  or  any  part  thereof." 

Kelly  vs.  Clark,  53  Pac.  (Mont.)  959;  Montana  Ry.  Co. 

vs.  Warren,  12  Pac.  (Mont.)  641. 

If  there  is  a  statute  on  the  subject  of  the  valuation  of 
property  for  which  stock  is  issued  it  must  be  observed. 

Donald  vs.  American  Refining  Co.,  61  N.  J.  Eq.  456; 
Bank  vs.  Lumber  Co.,  9  S.  E.  (W.  Va.)  357;  Watterbee 
vs.  Baker,  35  N.  J.  Eq.  501 ;  Clark  vs.  Bever,  139  U.  S. 
96;  Fogg  vs.  Blair,  139  U.  S.  118;  Lubke  vs.  Knapp,  79 
Mo.  22. 

§  216b.     Promoter. 

"A  promoter,"  says  the  Supreme  Court  of  California  is, — 
"one  who  initiates  a  corporate  enterprise.  He  brings  the  in- 
corporation and  the  capital  necessary  to  prosecute  the  con- 
templated business  together  and  is  active  in  setting  the  cor- 
porate machinery  in  motion." 

Ex-mission  L.  &.  W.  Co.  vs.  Flash,  97  Cal.  610;  Bur- 
bank  vs.  Dennis,  101  Cal.  90. 

§  216c.     Promotion  or  Bonus   Stock. 

Upon  the  subject  of  promotion  or  bonus  stock  Legis- 
latures have  enacted  and  the  court  ruled.  Where  there  are 
statutes,  necessarily  they  govern  in  their  jurisdiction,  other- 
wise much  has  been  ruled  and  the  rules  differ. 

If  a  corporation  not  in  a  failing  condition  gives  some  of 
its  stock  away  may  it  not  do  so  just  the  same  as  an  in- 
dividual gives  his  property,  so  long  as  there  is  enough  to  pay 
creditors  what  right  have  they  to  complain?  It  may  be  the 
best  business  policy  the  company  could  inaugurate  to  inter- 
est strength  in  that  very  way. 

On  the  other  hand  to  be  just  before  generous  is  principle, 
and  why  should  it  not  apply  with  equal  force  to  corporate 


INCORPORATION     OF     COMPANIES  .        301 

concerns?  This,  however,  anticipates  that  creditors  will  be 
injured,  and  if  injured  ought  they  not  have  their  remedy? 
But  against  who? 

If  there  are  creditors  and  the  stock  is  given  away,  is  that 
not  dividing  the  assets  arid  decreasing  the  creditors'  security? 
If  it  is,  he  can  complain.  If  a  creditor  has  a  first  right  to 
the  assets  over  the  stockholders  as  his  security,  then  he  can 
not  be  injured  whatever  may  be  done  with  the  stock  and 
has  no  right  to  be  heard. 

To  illustrate,  the  Court  of  Appeals  of  New  York  has 
said : — 

"It  may  be  admitted  that  the  liability  of  subscribers  on 
unpaid  stock  subscriptions  constitute  an  asset  of  the  cor- 
poration which  can  not  be  given  up  by  the  corporation  with- 
out consideration  on  the  part  of  the  creditors.  The  unissued 
shares  of  a  corporation  are  not  assets.  When  issued  they 
represent  the  proportionate  interest  of  the  shareholders  in  the 
corporate  property, — an  interest,  however,  subordinate  to  the 
claims  of  creditors.  There  are  unquestionably  public  evils 
growing  out  of  the  creation  and  multiplication  of  shares  of 
stock  in  corporations  not  based  upon  corporate  property.  The 
remedy  is  with  the  Legislature.  But  the  liability  of  a  share- 
holder to  pay  for  the  stock  does  not  arise  out  of  his  relation, 
but  depends  upon  his  contract,  express  or  implied,  or  upon 
some  statute,  and  in  the  absence  of  either  of  these  grounds 
of  liability,  we  do  not  perceive  how  a  person  to  whom  shares 
have  been  issued  as  a  gratuity  has  by  accepting  them  com- 
mitted any  wrong  upon  the  creditors  or  made  himself  liable 
to  pay  the  nominal  face  of  the  share  as  upon  his  subscription 
or  contract." 

Christensen  vs.  Eno,  106  N.  Y.  97;  12  N.  E.  648;  N.  H. 
H.  N.  Co.  vs.  Co.,  142  Mass.  349. 

On  the  other  hand  courts  have,  so  to  speak,  created  a 
liability  in  favor  of  creditors  upon  bonus  or  promotion  stock 
when  issued  as  non-assessable  stock  to  stockholders,  they 
have  treated  such  issue  of  stock  as  an  unpaid  subscription  for 
stock. 

Schoville  vs.  Thayer,  105  U.  S.  143 ;  Handley  vs.  Stutz, 
139  U.  S.  417 ;  De  La  Vergne  Refrigerator  Co.  vs.  Ger- 
man;  Saving,  etc.,  175  U.  S.  40;  Rogers  vs.  Gross,  67 


302  INDUSTRIAL     CORPORATIONS 

Minn.  224;  Garret  vs.  Co.,  113  Mo.  330;  Peninsula 
Savings  B.  vs  Co.,  105  Mich.  538. 

§217.     Assignment  of  Stock — How  Made. 

1.  May  be  made  by  simple  delivery. 

Decaremont  vs.  Bogert,  36  Hun.  382 ;  Frazier  vs. 
Charleston,  11  S.  C.  486. 

If  the  corporation  transfers  a  certificate  without  the  old 
certificate  being  signed,  the  company  is  liable  to  the  owner 
of  the  old  certificate. 

Taft  vs.  Presidio,  etc.  Co.,  84  Cal.  131. 

2.  By   an   assignment   of  the   certificate   on    the   back   or 
separate  paper. 

Smith  vs.  Savin,  140  N.  Y.  315. 

3.  By  a  blank  power  of  attorney  on  the  back  of  the  cer- 
tificate  authorizing  some   person,   left   in   blank,   to  sign   the 
transfer-book  of  the  company. 

Allen  vs.  South  Boston  R.  R.  Co.,  Mass.  200;  S.  C.  25 
Fed.  Cas.  745 ;  Taft  vs.  Presidio,  84  Cal.  131  ;  22  Pac. 
Rep.  485;  Quay  vs.  Presidio,  etc.  R.  R.,  82  Cal.  1. 

4.  The   transfer   of   stock   does   not   require   a   seal,   such 
transfer   is   like   the   transfer   of   any   other   chose   in    action. 
The  seal  is  entirely  superfluous. 

German  Union,  etc.  Assoc.  vs.  Sendmeyer,  50  Pa.  St. 
67;  Commercial  Bank  vs.  Kortright,  22  Wend.  348; 
McNeil  vs.  Tenth  Nat.  Bank,  46  N.  Y.  325;  Bridge- 
port Bank  vs.  New  York,  etc.  R.  R.,  30  Conn.  231,  274; 
Easton  vs.  London,  J.  S.  Bank  L.  R.  34  Ch.  D.  95. 

Commercial  necessity  has  established  the  rule,  which  the 
courts  have  recognized  "that  a  transfer  in  blank  is  sufficient 
to  pass  the  stock"  this  is  by  the  seller  simply  to  sign  his 
name  to  the  power  of  attorney  on  the  back  of  the  stock  with 
nothing  more. 

Walker  vs.  Detroit  Transit  Ry.,  47  Mich.  338;  Penn- 
sylvania R.  R.'s  Appeal,  86  Pa.  St.  80;  Cutting  vs. 
Damerel,  88  N.  Y.  410;  German  Union,  etc.  Assoc.  vs. 
Sendmeyer,  50  Pa.  St.  67;  Ex  parte  Sargent,  L.  R.  17 
Eq.  273;  Ortigosa  vs.  Brown,  47  L.  J.  (Ch.)  168;  Re 
Barned's  Banking  Co.,  L.  R.  3  Ch.  App.  105. 


INCORPORATION     OF     COMPANIES  303 

A  power  of  attorney  on  the  back  of  a  certificate  of  stock 
signed  in  -blank  is  sufficient  to  transfer  shares  of  stock  in  a 
corporation. 

Andrews  vs.  Worcester,  etc.  R.  R.,  159  Mass.  64  (1893). 

Even  in  the  absence  of  such  issuage,  a  blank  transfer  on 
the  back  of  a  certificate,  to  which  the  holder  has  affixed  his 
name,  is  a  good  assignment ;  and  a  party  to  whom  it  is  de- 
livered is  authorized  to  fill  it  up  by  writing  a  transfer  and 
power  of  attorney  over  the  signature. 

McNeil  vs"  Tenth  Nat.  Bank,  46  N.  Y.  325,  331. 

§  218.     Power  in  Blank  Filled  in  by  Holder  Legal. 

"There  is  no  force  in  the  suggestion  that  the  power  of  at- 
torney in  the  present  case  was  incomplete,  because  there  were 
blanks  for  the  number  of  shares,  and  for  the  name  of  the  at- 
torney. Any  holder  might  fill  up  the  blanks  and  constitute 
himself  the  attorney.  These  points  are  too  well  settled  to 
need  discussion." 

Holbrook  vs.  New  Jersey  Zinc  Co.,  57  N.  Y.  616,  623. 

§  219.     Dividends. 

A  dividend  ordinarily  means  profit  of  the  corporation. 
Lockhardt  vs.  Van  Alstyne,  31   Mich.  76;  Chaffee  vs. 
Rutland  R.  R.  55  Vt.  110,  129;  Hyatt  vs.  Allen,  56  N. 
Y.  553. 

"The  term  dividend  in  its  technical  as  well  as  in  its  or- 
dinary acceptation  means  that  portion  of  its  profits  which  the 
corporation,  by  its  director,  set  apart  for  ratable  division 
among  its  shareholders." 

Mobile.,  etc.  R.  R.  vs.  Tennessee,  153  U.  S.  486. 

Until  a  dividend  is  declared  by  the  proper  corporate  au- 
thorities, the  profits  belong  to  the  company  and  not  to  the 
stockholder. 

See  authorities  supra. 

There  are  four  ways  in  which  a  dividend  may  be  paid :  In 
cash  ;  in  stock ;  in  bonds  or  scrip ;  in  property.  The  dividends 
of  a  corporation  are  declared  by  the  directors  and  not  by  the 
stockholders.  As  was  said  in  Hunter  vs.  Roberts,  83  Mich. 
63-— 


304  INDUSTRIAL     CORPORATIONS 

"The  directors  of  a  corporation,  and  they  alone,  have  the 
power  to  declare  a  dividend  of  the  earnings  of  the  corporation 
and  to  determine  its  amount." 

A  scrip  dividend  is  a  dividend  of  certificates  giving  the 
holder  certain  rights  which  are  specified  in  the  certificate  it- 
self. These  dividends  are  usually  declared  when  the  com- 
pany has  property  that  it  wishes  to  divide  which  is  not  in  the 
shape  of  money.  The  company  wishing  to  anticipate  the  time 
when  the  property  may  be  sold  for  cash,  and  the  cash  dis- 
tributed by  a  money  dividend,  and  the  certificates  usually  or 
sometimes  draw  interest  until  the  company  shall  have  ac- 
cumulated sufficient  surplus  to  pay  the  certificates  in  full. 

Chaff ee  vs.  Rutland  R.  R.,  55  Vt.  110;  State  vs.  Balti- 
more, etc.  Co.,  6  Gill.  (Md.)  363;  Rogers  vs.  New  York, 
etc.,  Land  Co.,  134  N.  Y.  197. 

In  Brown  vs.  Lehigh,  etc.  Co.,  49  Pa.  St.  270,  a  share  of 
scrip  was  as  follows  : — 

§  220.     Scrip,  Form  of. 

No Shares 

This  is  to  certify  that ,  ....  heirs  or  assigns, 

will  be  entitled,  upon  the  surrender  of  this  certificate  to  .... 
shares  in  the  capital  stock  of  the  Lehigh  Coal  and  Navigation 
Company  as  soon  as  the  present  funded  debt  of  the  company 
has  been  paid  off,  or  adequate  provision  made  for  its  dis- 
charge when  due  and  payment  demanded  and  will  also  be  en- 
titled to  a  pro  rata  share  of  any  future  distribution  of  scrip ; 
but  not  to  any  cash  dividend  until  this  certificate  has  been 
converted  into  stock,  as  above  provided. 

Or,  this  certificate  may,  at  any  time,  at  the  option  of  the 
holder  thereof,  be  converted  into  stock  upon  payment  by  said 
holder,  either  in  cash  or  in  the  six-per-cent  loans  of  the  com- 
pany, of  the  par  value  of  said  stock,  and  the  surrender  of  this 
certificate. 

This  certificate  is  transferable  only  at  the  office  of  the 
company. 

Witness,  etc. 

Scrip  is  practically  the  same  thing  as  shares  of  stock,  ex- 
cept that  it  has  no  voting  power.  It  is  usually  issued  because 
the  company  can  issue  no  more  capital  stock,  the  capital  stock 


INCORPORATION     OF     COMPANIES  305 

having  already  been  out.  If  the  interest  or  dividends  are  pay- 
able only  from  the  profits,  the  issue  of  the  scrip  is  legal  when- 
ever a  stock  dividend  would  be  legal ;  that  is,  whenever  the 
property  of  the  company  is  equal  in  value  to  the  capital  stock 
plus  the  scrip  dividend.  For  an  instructive  case  on  scrip 
dividends,  see  Bailey  vs.  Railroad  Co.,  22  Wall.  604. 

A  property  dividend  is  where  property  is  divided  instead 
of  that  property  being  sold  for  cash  and  the  cash  then  used 
to  pay  a  dividend. 

Merchant  vs.  Western  Land  Assoc.,  56  Minn.  327;  Ol- 
sen  vs.  Homestead,  etc.  Co.,  87  Tex.  368. 

A  property  dividend  accrues  where  a  corporation  sells  all 
its  property  to  another  corporation  and  takes  in  payment 
thereof  stock,  and  the  bonds  of  the  purchasing  corporation, 
and  then  makes  a  distribution  of  the  same  among  its  stock- 
holders. However,  any  stockholder  desiring  his  part  of  the 
bonds  or  desiring  his  part  of  the  sale  in  cash,  is  entitled  to 
the  same  and  may  have  an  injunction  until  it  is  secured. 

State  vs.  Bailey,  16  Ind.  46;  Kelly  vs.  Mariposa  Land, 
etc.  Co.,  4  Hun.  632 ;  Cf.  New  Jersey  Zinc  Co.  vs.  New 
Jersey  Franklinite  Co.,  13  N.  J.  Eq.  322;  S.  C,  15  N.  J. 
Eq.  418. 

The  majority  of  stockholders  have  no  right  upon  a  disso- 
lution to  sell  the  property  to  a  new  corporation  for  stock  in 
the  latter,  and  then  say  to  the  minority : — 

"We  have  formed  a  new  company  to  conduct  the  business 
of  this  old  corporation,  and  we  have  fixed  the  value  of  the 
shares  of  the  old  corporation.  We  propose  to  take  the  whole 
of  it  and  pay  you  for  your  shares  at  that  valuation,  unless 
you  come  into  the  new  corporation,  taking  shares  in  it  in 
payment  of  your  shares  in  the  old  one." 

Mason  vs.  Pewabic  Min.  Co.,  133  U.  S.  50;  Mason  vs. 
Pewabic  Min.  Co.,  66  Fed.  Rep.  391 ;  Cf.  Treadwell  vs. 
Salisbury  Mfg.  Co.,  73  Mass.  393 ;  Buford  vs.  Keokuk, 
etc.  Co.,  3  Mo.  App.  159;  Black  vs.  Delaware,  etc.  Canal 
Co.,  22  N.  J.  Eq.  130,  415;  S.  C.,  24  N.  J.  Eq.  455; 
Lauman  vs.  Lebanon  Valley  R.  R.,  30  Pa.  St.  42. 
21 


306  INDUSTRIAL     CORPORATIONS 

A  stock  dividend,  as  the  name  implies,  is  a  dividend  of  the 
stock  of  the  company.  Such  a  dividend  is  lawful  when  an 
amount  of  money  or  property  equivalent  in  value  to  the  full 
par  value  of  the  stock  distributed  as  a  dividend  has  been 
accumulated  and  is  permanently  added  to  the  capital  stock 
of  the  corporation. 

Williams  vs.  Western  Union  Tel.  Co.,  93  N.  Y.  162,  188, 
et  seq. ;  Dock  vs.  Schlichter,  etc.  Co.,  167  Pa.  St.  370; 
Farwell  vs.  Great  Western  Tel.  Co.,  161  111.  522,  a  dic- 
tum; City  of  Ohio  vs.  Cleveland,  etc.  R.  R.,  6  Ohio  St. 
489;  Howell  vs.  Chicago,  etc.  R.  R.,  51  Barb  378;  Clark- 
son  vs.  Clarkson,  18  Barb.  646;  Simpson  vs.  Moore,  30 
Barb.  637;  Gordon  vs.  Richmond,  etc.  R.  R.,  78  Va.  501, 
521 ;  Minot  vs.  Paine,  99  Mass.  101  ;  Boston,  etc.  R.  R. 
vs.  Commonwealth,  100  Mass.  399;  Deland  vs.  Williams, 
101  Mass.  571;  Rand  vs.  Hubbell,  115  Mass.  461,  474; 
Gibbons  vs.  Mahon,  4  Mackey,  130;  Jones  vs.  Morrison, 
31  Minn.  140;  Earp's  Appeal,  28  Pa.  St.  368;  Wiltbanks 
Appeal,  64  Pa.  St.  256;  Commonwealth  vs.  Pittsburgh, 
etc.  R.  R.,  74  Pa.  St.  83;  Brown  vs.  Lehigh  Coal,  etc. 
Co.,  49  Pa.  St.  270;  Commonwealth  vs.  Cleveland,  etc. 
R.  R.,  29  Pa.  St.  370;  Parker  vs.  Mason,  8  R.  I.  427; 
State  vs.  Baltimore,  etc.  R.  R.,  6  Gill  (Md.)  363;  Harris 
vs.  San  Francisco  Sugar,  etc.  Co.,  41  Cal.  393. 

The  question  often  arises  as  to  who  shall  receive  the  divi- 
dend. The  general  rule  is  that  the  person  in  whose  name  the 
stock  stands  registered  upon  the  corporate  stock  book  at  the 
time  the  dividend  is  declared  is  entitled  to  the  dividend. 

Brisbane  vs.  Delaware,  etc.  R.  R.,  94  N.  Y.  204 ;  affirm- 
ing 25  Hun.  438;  Donnally  vs.  Hearndon,  41  W.  Va. 
519;  Jones  vs.  Terre  Haute,  etc.  R.  R.  29  Barb.  353, 
affirmed,  57  N.  Y.  196;  Northup  vs.  Newton,  etc.  Turnp., 
3  Conn.  544;  Cf.  Manning  vs.  Quicksilver  Min.  Co., 
24  Hun.  360. 

It  is  a  well-settled  rule  that  a  corporation  will  be  protected 
in  paying  dividends  to  a  recorded  shareholder,  although  he 
may  have  transferred  his  shares,  no  notice  of  the  transfer  hav- 
ing been  given  to  the  company. 

Bank  of  Commerce's  Appeal,  73  Pa.  St.  59;  Bell  vs. 

Lafferty,  1  Pa.  Sup.  Ct.  454;  Bank  of  Utica  vs.  Smalley, 


INCORPORATION     OF     COMRANIES  307 

2  Cow.  770;  Smith  vs.  American  Coal  Co.,  7  Lans.  317; 
Cleveland,  etc.  R.  R.  vs.  Robbins,  35  Ohio  St.  483. 

However,  if  the  company  have  notice  of  the  transfer  of 
the  stock,  they  must  pay  the  dividend  to  the  transferee. 

Robinson  vs.  New  Berne  Nat.  Bank,  95  N.  Y.  637; 
Timberlakc  vs.  Shippers'  Compress  Co.,  72  Miss.  323 ; 
See  authorities  supra.,  beginning  at  "Bank  of  Com- 
merce's Appeal." 

As  between  a  vendor  and  vendee  of  the  stock,  the  rule  is 
settled  that  the  vendee  is  entitled  to  all  the  dividends  on  the 
stock  which  are  declared  after  the  sale,  even  though  the 
transfer  has  not  been  recorded. 

Jermain  vs.  Lake  Shore,  etc.  R.  R.,  91  N.  Y.  483 ;  March 
vs.  Railroad  Co.,  43  N.  H.  515,  520;  Ryan  vs.  Leaven- 
worth,  etc.  R.  R.,  21  Kan.  365,  403 ;  Foot  vs.  Worthing- 
ton  39  Mass.  299 ;  Jones  vs.  Terre  Haute,  etc.  R.  R.,  57 
N.  Y.  196;  Currie  vs.  White,  45  N.  Y.  822;  Brundage  vs. 
Brundage,  65  Barb.  397,  408,  affirmed,  60  N.  Y.  544; 
Goodwin  vs.  Hardy,  57  Me.  143 ;  Hill  vs.  Newicha- 
wanick  Co.,  8  Hun.  459;  aff'd,  71  N.  Y.  593  (1877); 
Bates  vs.  McKinley,  31  L.  J.  (Ch.,  398;  King  vs.  Follet, 

3  Vt.  385 ;  Cf.  Kane  vs.  Bloodgood,  7  Johns,  Ch.  90. 

The  transfer  also  passes  such  dividends  as  are  declared 
subsequently  to  the  transfer,  although  the  dividend  may  have 
been  earned  previous  to  the  time  the  transfer  was  made. 

Kane  vs.  Bloodgood,  7  Johns,  Ch.  90,  by  Chancellor 
Kent ;  Goodwin  vs.  Hardy,  57  Me.  143 ;  March  vs.  East- 
ern R.  R.,  43  N.  H.  515;  Phelps  vs.  Farmers',  etc.  Bank, 
26  Conn.  269;  Brundage  vs.  Brundage,  1  Thomp  &  C. 
82;  aff'd,  60  N.  Y.  544;  Jones  vs.  Terre  Haute,  etc.  R. 
R.,  57  N.  Y.  196;  Currie  vs.  White,  45  N.  Y.  822. 

And  a  purchaser  of  stock  at  a  tax  sale,  if  the  proceedings 
are  legal  and  regular,  is  entitled  to  a  certificate  and  to  divi- 
dends subsequently  declared. 

Smith  vs.  Northampton  Bank,  58  Mass.  1. 
A  pledgee  of  stock  is  entitled  to  dividends  on  the  stock, 
but  must  account  for  the  dividends  when  the  pledge  is  re- 
deemed. 

Herrman  vs.  Maxwell,  47  N.  Y.  Super.  Ct.  347. 


308  INDUSTRIAL     CORPORATION'S 

And  the  pledger  who  collects  them  holds  them  in  trust  for 
the  pledgee. 

Hill  vs.  Newichawanick  Co.,  8  Hun.  459;  affirmed,  71 
N.  Y.  599. 

In  Central,  etc.  Bank  vs.  Wilder,  32  Neb.  454,  it  was  held 
that  not  only  was  the  pledgee  entitled  to  the  dividends,  but 
was  entitled  to  them  although  the  stock  stood  on  the  corpo- 
rate books  in  the  name  of  the  pledger,  where  the  officers  knew 
all  about  the  pledge.  Where  a  pledge  of  stock  is  renewed 
and  a  new  note  given,  dividends  accruing  before  the  renewal 
go  to  the  pledgor. 

Fairbanks  vs.  Merchants'  Nat.  Bank,  132  111.  120. 

A  pledgee  is  entitled  to  collect  the  dividends,  and  in  some 
instances  may  do  so  even  though  the  stock  is  not  transferred 
to  him  on  the  books,  it  being  shown  that  the  officers  knew 
of  the  pledge. 

Guarantee  Co.  vs.  East  Rome  Town  Co.,  96  Ga.  511. 

A  pledgee  of  stock,  even  though  not  recorded  as  a  stock- 
holder, is  entitled  to  dividends  declared  after  the  pledge  was 
made,  as  against  a  claim  of  the  corporation  against  the  pledgor 
as  an  offset. 

Gemmell  vs.  Davis,  75  Md.  546. 

Where  a  stockholder  of  record  pledges  his  certificates  of 
stock,  and  no  transfer  is  made  on  the  books,  and  subsequently 
a  dividend  is  declared,  and  after  such  dividend  is  payable, 
but  before  it  is  actually  paid,  the  pledgee  presents  to  the  com- 
pany the  stock  for  transfer,  with  a  written  request  of  the 
pledgor  to  the  same  effect,  together  with  as  assignment  by  the 
pledgor  to  the  pledgee  of  the  dividend,  it  is  no  defense  to 
the  company  that  it  has  a  claim  against  the  pledgor  for  a 
personal  debt,  or  for  a  debt  of  a  firm  in  which  he  is  interested. 

American,  etc.  Bank  vs.  Nashville,  etc.  Co.,  36  S.  W. 

Rep.  190  (Tenn.) 

The  corporation  is  liable  to  a  pledgee,  to  whom  the  stock 
has  been  transferred  on  the  books,  for  dividends  paid  to  the 


INCORPORATION     OK     COMPANIES  309 

pledger.  The  acceptance  of  part  payment,  etc.,  by  the  pledgee 
from  the  pledger  does  not  waive  his  cause  of  action  against 
the  company. 

Boyd  vs.  Conshocken  Worsted  Mills,  149  Pa.  St.  363. 

In  Maine  it  has  been  held  that  while  a  corporation  may  pay 
an  ordinary  dividend  to  a  stockholder  of  record,  yet  that  a 
dividend  paid  in  the  liquidation  and  winding  up  of  the  cor- 
poration must  be  paid  to  the  holder  of  the  certificate,  even 
though  such  holder  be  a  transferee  who  has  not  been  recorded 
as  such  on  the  books  of  the  company,  and  that  the  company 
is  liable  to  him  for  dividends  in  liquidation,  even  though  it  has 
paid  them  to  the  registered  stockholder,  and  that  this  rule  ap- 
plies to  a  pledgee  of  a  certificate  of  stock  as  well  as  a  pur- 
chaser of  a  certificate  of  stock. 

Bath  Sav.  Inst.  vs.  Sagadahoc  Nat.  Bank,  89  Me.  500. 

Where  a  certificate  is  issued  by  the  corporation  to  the 
pledgee  as  pledgee,  on  the  face  of  the  certificate,  the  dividends 
must  be  paid  to  him  ;  and  if  the  corporation  pays  the  dividends 
to  the  pledger,  it  is  liable  therefor  to  the  pledgee. 

Hunt  vs.  Laconia,  etc.  Ry.,  39  Atl.  Rep.  437  (X.  H.) 

In  insolvency  proceedings  a  pledgee  is  entitled  to  divi- 
dends without  giving  up  his  sepurity,  and  the  federal  court 
will  not  follow  the  State  decisions  on  this  point  in  receiver- 
ship cases. 

London,   etc.    Bank   vs.   Willimette,   etc.   Co.,  80   Fed. 

Rep.  226. 

The  pledgee  is  entitled  to  the  dividends,  even  though  the 
stock  stands  in  the  name  of  the  pledger  on  the  books  of  the 
company. 

George,  etc.  Co.  vs.  Rangel,  etc.  Co.,  50  .Pac.  Rep.  630 
(Utah.) 

A  bill  in  equity  may  be  maintained  by  a  stockholder  to 
prevent  an  unequal  or  unfair  distribution  of  the  profits  of  the 
company. 

Luling  vs.  Atlantic  Mut.  Ins.  Co.,  45  Barb.  510. 


310  INDUSTRIAL     CORPORATIONS 

The  minority  may  bring  the  officers  to  an  accounting  for 
an  unfair  distribution  of  the  bonds,  etc.,  owned  by  a  construc- 
tion company. 

Meyers  vs.  Scott,  2  N.  Y.  Supp.  753. 

A  dividend  when  declared  becomes  a  debt  in  favor  of  the 
shareholder,  and  is  a  separate  and  distinct  fund  from  the 
capital  stock  and  surplus  profits. 

Van  Dyck  vs.  McQuade,  86  N.  Y.  38 ;  Jermain  vs.  Lake 
Shore,  etc.  R.  R.,  91  N.  Y.  483;  Keppel  vs.  Petersburg 
R.  R.,  Chases  Dec.  167;  King  vs.  Paterson,  etc.  R.  R 
Co.,  29  N.  J.  L.  82,  504;  Hill  vs.  Newichawanick  Co., 
71  N.  Y.  593 ;  affirming  S.  C,  8  Hun.  459;  Brundage  vs. 
Brundage,  60  N.  Y.  544 ;  affirming  S.  C.,  65  Barb.  397 ; 
Spear  vs.  Hart,  3  Rob.  (N.  Y.)  420;  Manning  vs.  Quick- 
silver Min.  Co.,  24  Hun.  360;  Kane  vs.  Bloodgood,  7 
Johns.  Ch.  90;  Beers  vs.  Bridgeport  Spring  Co.,  42 
Conn.  17;  Fawcett  vs.  Laurie,  1  Dr.  &  Sm.  192;  Re  Le 
Blanc,  14  Hun.  8. 

A  dividend  once  declared  can  not  be  revoked. 
Beers  vs.  Bridgeport  Spring  Co.,  42  Conn.  17. 

However,  a  dividend  is  within  the  power  of  the  directors 
to  declare,  and  not  the  shareholders,  and  it  is  for  them  to  say 
whether  or  not  a  dividend  shall  be  declared. 

"The  directors  of  a  corporation,  and  they  alone,  have  the 
power  to  declare  a  dividend  of  the  earnings  of  the  corpora- 
tion and  to  determine  its  amount." 

Hunter  vs.  Roberts,  83  Mich.  63. 

The  board  of  directors  and  not  the  stockholders  declare 
dividends. 

Grant  vs.  Ross,  37  W.  Rep.  263  (Ky.). 

Many  attempts  have  been  made  to  induce  the  court  of 
equity  to  compel  the  directors  to  declare  dividends,  but  still, 
though  they  have  not  disclaimed  jurisdiction,  they  have  uni- 
formly refused  to  interfere. 

New  York,  etc.  R.  R.  vs.  Nickalls,  119  U.  S.  296;  rev'g, 
15  Fed.  Rep.  575 ;  Ely  vs.  Sprague,  Clarke,  Ch.  351 ;  Wil- 
liams vs.  Western  Union  Tel.  Co.,  93  N.  Y.  162; 
Reynolds  vs.  Bank  of  Mount  Yernon,  6  N.  Y.  App.  Div. 


INCORPORATION     OF     COMPANIES  311 

62;  Park  vs.  Grant  Locomotive  Works,  40  N.  J.  Eq. 
114;  Barnard  vs.  Vermont,  etc.  R.  R.,  89  Mass.  512; 
Chaffee  vs.  Rutland  R.  R.,  55  Vt.  110,  133;  Smith  vs. 
Plattville  Mfg.  Co.,  29  Ala.  503;  Barry  vs.  Merchants' 
Exchange  Co.,  1  Sandf.  Ch.  280. 

In  Rex  vs.  Bank  of  England,  2  B.  &  Aid.  620,  the  court  re- 
fused to  grant  a  mandamus  for  an  examination  of  the  ac- 
counts with  a  view  to  compelling  a  dividend. 

The  directors  are  bound  to  distribute  as  profits  only  such 
part  of  the  net  income  as  they  think  proper;  and  their  judg- 
ment of  what  is  proper  is  conclusive  upon  the  stockholders. 
State  vs.  Baltimore,  etc.  R.  R.,  6  Gill   (Md.)  363;  Cf. 
Dent  vs.  London  Tramways  Co.,  L.  R.  16  Ch.  D.  344. 

In  Park  vs.  Grant  Locomotive  Works,  40  N.  J.  Eq.  114, 
the  court  said  : — 

"In  cases  where  the  power  of  the  directors  of  a  corpora- 
tion is  without  limitation  and  free  from  restraint,  they  are  at 
liberty  to  exercise  a  very  liberal  discretion  as  to  what  disposi- 
tion shall  be  made  of  the  gains  of  the  business  of  the  cor- 
poration. Their  power  over  them  is  absolute  so  long  as  they 
act  in  the  exercise  of  an  honest  judgment.  They  may  reserve 
of  them  whatever  their  judgment  approves  as  necessary  or 
judicious  for  repair  and  improvements,  and  to  meet  contin- 
gencies, both  present  and  prospective." 

In  the  above  case,  however,  a  contract  that  all  the  net 
profits  should  be  divided  annually  varied  these  rules.  The 
court  refused  to  order  a  dividend. 

In  State  vs.  Bank  of  Louisiana,  6  Ala.  66,  the  court  re- 
fused to  order  a  bank  to  declare  a  dividend,  although  it  had 
profits  on  hand  of  about  one  tenth  of  its  capital.  The  court 
said : — 

"If  the  board  honestly  err  in  these  matters,  we  are  not 
ready  to  say  the  courts  possess  the  power  to  rectify  its  mis- 
takes." 

The  remedy  is  in  the  elections.  Courts  will  not  order  a 
dividend  to  be  declared  unless  the  directors, — 

"refuse  to  declare  a  dividend  when  the  corporation  has  a 
surplus  of  net  profits  which  it  can,  without  detriment  to  its 
business,  divide  among  its  stockholders,  and  when  a  refusal 


312  INDUSTRIAL     CORPORATIONS 

to  do  so  would  amount  to  such  an  abuse  of  discretion  as  would 
constitute  a  fraud  or  breach  of  that  good  faith  which  they 
are  bound  to  exercise  toward  the  stockholders." 

A  dividend  will  not  be  ordered  when  the  profits  are  in- 
vested in  the  plant  and  in  long-time  notes. 
Hunter  vs.  Roberts,  83  Mich.  63. 

In  Smith  vs.  Prattville,  etc.  Co.,  29  Ala.  503,  the  court  re- 
fused to  order  a  dividend,  inasmuch  as  the  charter  expressly 
vested  discretion  as  to  that  matter  in  the  board  of  directors. 

Where  large  dividends  are  made  by  a  manufacturing  com- 
pany, it  is  entirely  within  the  fair  and  honest  discretion  of  the 
directors  whether  the  remaining  profits  shall  be  passed  to  sur- 
plus or  used  for  dividends. 

McNab  vs.  McNab,  etc.  Co.,  62  Hun.  18. 

The  fact  that  a  manufacturing  company  extended  its  busi- 
ness so  as  to  include  iron  pipe  as  well  as  brass,  and  loaned 
money,  which  loans,  however,  the  president  was  willing  to 
take  up,  and  had  owned  government  bonds,  is  not  sufficient 
to  entitle  a  stockholder  who  has  acquiesced  therein  to  demand 
that  all  profits  be  paid  out  in  dividends. 

McNab  vs.  McNab,  etc.  Co.,  62  Hun.  18. 

Although  the  road  was  leased  and  the  floating  debt  was 
only  $1,000,  and  the  bonded  debt,  $70,000,  was  due  in  seven- 
teen years,  and  the  other  expenses  only  $6,000,  while  the  com- 
pany had  $36,000  on  hand  and  the  regular  rental  for  its  road 
coming  in,  yet  the  court  refused  to  order  a  dividend.  In 
Karnes  vs.  Rochester,  etc.  R.  R.,  4  Abb.  Pr.  (N.  S.)  107,  the 
court  holding  also  that  a  demand  must  first  be  made,  and  that 
the  directors,  instead  of  the  company,  are  the  proper  parties 
defendant.  Barbard  vs.  Vermont,  etc.  R.  R.,  89  Mass.  512, 
there  was  a  contract  to  pay  dividend,  and  it  was  upon  this  con- 
tract that  the  court  based  its  right  to  pass  upon  the  ability  of 
the  company  to  declare  a  dividend.  The  court  refused  to  order 
a  dividend. 

In  Richardson  vs.  Vermont,  etc.  R.  R.,  44  Vt.  613,  the  court 
decreed  the  payment  of  what  was  substantially  a  dividend  to 


INCORPORATION     OF     COMPANIES  313 

the  stockholder,  but  stated  that  an  accounting  must  first  be 
had  to  ascertain  whether  there  was  available  for  that 
purpose, — 

"a  fund  adequate,  not  only  for  the  payment  of  the  claims  of 
the  plaintiffs  in  the  cause,  but  for  the  payment  of  all  stock- 
holders having  like  claims ;  and  there  must  be  a  surplus  fund 
over  and  above  what  is  requisite  for  the  payment  of  the  cur- 
rent expenses  of  the  business,  for  discharging  its  duties  to 
creditors,  and  over  and  above  what  reasonable  prudence 
would  require  to  be  kept  in  the  treasury  to  meet  the  accidents, 
risks,  and  contingencies  incident  to  the  business  of  operating 
the  railroad." 

In  Dent  vs.  London  Tramways  Co.,  L.  R.  16  Ch.  D.  344. 
the  court  compelled  the  company  to  pay  a  dividend  on  the 
preferred  stock,  where  there  were  profits  available,  but  the 
common  stockholders  proposed  to  use  all  the  profits  for  long- 
neglected  repairs,  the  real  reason  being  that  there  were  profits 
sufficient  for  a  dividend  on  the  preferred,  but  not  on  both  the 
common  and  preferred.  The  court  said  that  profits  meant 
the  "surplus  in  receipts,  after  paying  expenses  and  restoring 
the  capital  to  the  position  it  was  in  on  the  first  of  January  in 
that  year." 

Where  a  bill  in  equity,  filed  for  the  purpose  of  obtaining  an 
accounting  and  the  declaration  of  a  dividend,  does  not  clearly 
make  out  the  existence  of  a  surplus  which  the  directors  ought 
to  distribute,  the  suit  will  fail. 

A  discovery  will  not  be  granted  where  there  is  no  allega- 
tion that  information  is  refused,  or  that  the  party  can  not  ex- 
amine the  books,  or  that  a  mandamus  was  inadequate. 
Wolfe  vs.  Underwood,  96  Ala.  329. 

§221.     Notice  of  Corporate  Meetings. 

ESSENTIAL  ELEMENTS. 

Calling  a  corporate  meeting  is  important  in  point  of  law, 
when  the  notice  thereof  is  called  in  question  by  legal  pro- 
ceedings. To  be  valid  and  binding  on  those  to  whom  the 
notice  is  given,  three  things  must  happen  and  concur:  time, 
place,  and  purpose  of  the  call  meeting. 


314  INDUSTRIAL     CORPORATIONS 

Parties  receiving  notices  with  either  one  of  the  above 
requisites  omitted  are  not  bound,  unless  the  law,  charter,  qr 
by-laws  otherwise  provide,  or  make  notice  unnecessary. 

Should  one  or  any  number  of  these  requisites  be  provided 
for  in  the  by-laws  or  elsewhere,  then  the  other  requisites 
must  be  stated,  else  the  party  receiving  the  notice  will  not 
be  bound. 

Nevertheless,  meetings  may  be  held  at  a  subsequent  time 
to  that  fixed  in  the  charter. 

People  vs.  Cummings,  72  N.  Y.  433;  Hughes  vs.  Parker, 
20  N.  H.  58. 

Elections  need  not  be  held  on  the  day  fixed  by  the  by- 
laws. They  may  be  held  at  any  subsequent  time. 

Beardsley  vs.  Johnson,  121  N.  Y.  224;  S.  C.,  1  N.  Y. 
Supp.  608. 

A  stockholder  who  takes  part  in  a  meeting  is  bound  and 
will  not  be  heard  to  say  that  others  had  no  notice  thereof. 
Nickum  vs.  Burckhardt,  47  Pac.  Rep.  788  (Oreg.). 
Generally  where  the  charter  or  by-laws  fix  the  time  and 
place  of  the  regular  meetings,  the  notice  need  not  designate 
the  particular  business  to  be  transacted  thereat. 

Notice  need  not  be  given  of  special  business  to  be  trans- 
acted at  the  regular  annual  meeting  of  the  stockholders. 

Chicago,  etc.  Ry.  vs.  Union  Pac.  Ry.,  47  Fed.  Rep.  15. 

Sampson  vs.  Bowdoinham  Steam-mill  Co.,  36  Me.  78,  hold- 
ing that  the  notice  of  the  annual  meeting  need  not  specify  that 
the  officers  are  to  be  elected,  even  though  the  by-laws  require 
the  notice  to  state  the  business.  Warner  vs.  Mower,  11  Vt. 
385,  where  a  provision  of  the  by-laws  relating  to  notices  was 
considered  as  not  affecting  those  for  stated  meetings,  and 
holding  that  a  notice  of  a  stated  annual  meeting  need  not 
specify  the  business  to  be  transacted,  there  being  nothing  in 
the  by-laws  limiting  or  specifying  the  business.  It  is  believed, 
however,  that  the  rights  of  stockholders  will  be  best  pre- 
served by  requiring  notice  to  be  given  of  any  extraordinary 
business  that  may  .come  before  an  annual  meeting. 


INCORPORATION     OF     COMPANIES  315 

Warner  vs.  Mower,  11  Vt.  385,  393;  State  vs.  Bonnell, 
35  Ohio  St.  10,  15. 

If  the  charter  or  by-laws  of  a  corporation  fix  the  time 
and  place  at  which  regular  meetings  shall  be  held,  this  is 
itself  sufficient  notice  to  stockholders,  and  no  further  notice 
is  necessary. 

Morrill  vs.  Little  Falls  Mfg.  Co.,  53  Minn.  371. 

As  to  whether  notice  is  necessary  of  the  annual  meeting1, 
where  the  corporation  has  long  been  defunct,  see  Morrill  vs. 
Little  Falls  Mfg.  Co.,  60  Minn.  405. 

The  precise  hour  at  which  the  meeting  is  to  be  held  must 
be  stated  in  the  notice. 

San  Buenaventura,  etc.  Co.  vs.  Vasault,  50  Cal.  534. 
All  special  meetings,  that  is  all  such  meetings  as  are  not 
provided  for  in  the  charter  or  by-laws,  the  notice  must  state 
particularly  the  time,  place,  and  the  business  to  be  transacted 
at  such  meetings. 

Re  Bridgeport  Old  Brewery  Co.,  L.  R.  2  Ch.  191 ;  Re 

Silkstone   Fall    Colliery   Co.,   L.   R.    1    Ch.   D.   38;   Cf. 

Wright's  Case,  L.  R.  12  Eq.  335  n.,  345  n. 

Tuttle  vs.  Michigan  Air  Line,  35  Mich.  247,  holding  that 
at  common  law  all  notices  of  meetings  for  special  or  excep- 
tional purposes  were  required  to  state  the  object  of  the  call. 
Ang.  &  A  Corp.  492. 

A  meeting  to  organize  and  elect  directors  is  invalid  where 
no  notice  of  the  business  is  given. 

Re  London,  etc.  Co.,  L.  R.  31  Ch.  D.  223. 

Shelby  R.  R.,  etc.  vs.  Louisville,  etc.  R.  R.,  12  Bush  (Ky.) 
62,  in  which  a  sale  of  a  railroad  was  set  aside  because  au- 
thorized at  a  meeting  of  stockholders  called  by  a  notice  not 
sufficient  in  point  of  time  and  defective  in  not  stating  the  ob- 
ject of  the  meeting. 

Zabriskie  vs.  Cleveland,  etc.  R.  R,,  23  How.  381,  400,  hold- 
ing that,  though  the  notice  was  insufficient,  yet  one  who  was 
represented  by  proxy  can  not  object  where  he  delayed  a  long 
time  in  complaining. 


316  INDUSTRIAL     CORPORATIONS 

A  notice  of  a  meeting  of  a  benevolent  society  called  to 
dissolve  must  state  the  object  of  the  meeting. 

St.  Mary's,  etc.  Assoc.  vs.  Lynch,  64  N.  H.  213. 

A  resolution  passed  at  an  extraordinary  meeting  upon  a 
matter  for  the  consideration  of  which  it  was  not  avowedly 
called,  or  which  was  not  specified  in  the  notice  convening  the 
meeting,  is  altogether  inoperative. 

Imp.  Bank  of  China  vs.  Bank  of  Hindustan,  L.  R.  6  Eq. 
L.  R.  91 ;  Anglo-Californian  Gold  Min.  Co.  vs.  Lewis, 
6  H.  &  N.  174;  Stearic  Acid  Co.,  9  Jur.  (N.  S.)  1066. 

Notice  of  a  meeting  to  consider  the  giving  of  a  mortgage 
is  sufficient  to  enable  the  meeting  to  authorize  a  mortgage. 
Evans  vs.  Boston  Heating  Co.,  157  Mass.  37. 

One  and  the  same  meeting  may  be  both  ordinary  and  ex- 
traordinary ;  ordinary  for  the  purpose  of  transacting  the  usual 
business  of  the  company,  and  extraordinary  for  the  transaction 
of  some  particular  business  of  which  special  notice  may  have 
been  given. 

See  Cutbill  vs.  Kingdom,  1  Exch.  494;  Graham  vs,  Van 

Diemen's  Land  Co.,  1  H.  &  N.  541. 

It  is  a  better  rule  to  follow,  even  at  regular  meetings,  to 
specify  the  business  to  be  transacted  thereat. 

The  annual  meeting  can  not  vote  an  increase  of  the  capital 
stock,  unless  special  notice  of  that  business  has  been  given 
though  the  by-laws  provide  that  any  business  may  be  trans- 
acted at  the  annual  meeting  without  special  notice  ;  the  statute, 
however,  prescribing  that  an  increase  of  capital  stock  may 
be  at  "any  meeting  called  for  the  purpose." 

Jones  vs.  Concord,  etc.  R.  R.,  38  Atl.  Rep.  120  (N.  H.). 

By  custom  any  business  may  be  transacted  at  the  annual 
meeting  without  special  notice  thereof  being  given,  but  any 
specific  restriction  as  to  any  particular  business  modifies  such 
rule. 

.  Mutual  F.  Ins.  Co.  vs.  Farquhar,  39  Atl.  Rep.  527  (Md.). 


INCORPORATION     OF     COMPANIES  317 

Where  a  special  meeting  is  called  for  a  particular  pur- 
pose, no  other  business  can  be  transacted  at  that  meeting. 
Warner  vs.  Mower,  11  Vt.  385. 

Where  all  the  stockholders  meet  and  transact  business,  no 
notice  is  necessary  either  at  a  general  or  special  meeting. 
Rex  vs.  Theodorick,  8  East  543. 

§  222.     Service  of  Notice  of  Meeting. 

Where  the  charter,  by-laws,  or  statute  provide  the  man- 
ner of  service  of  notice,  that  method  must  be  followed,  else 
the  meeting  is  invalid. 

In  Shelby  R.  R.  vs.  Louisville,  etc.  R.  R.,  12  Bush  (Ky.) 
62,  there  was  no  such  publication  as  was  required  by  statute, 
and  there  was  no  waiver  of  notice. 

In  Tuttle  vs.  Michigan  Air  Line,  35  Mich.  247,  where  a  con- 
solidated company  sued  a  subscriber  to  stock  in  one  of  the 
old  companies,  and  he  defeated  the  action  by  showing  that 
the  statutory  notice  of  the  proposed  consolidation  had  not 
been  given. 

In  Reilly  vs.  Oglebay,  25  W.  Va.  36,  where  a  notice  is  given 
by  the  secretary,  when  the  statute  required  it  to  be  given  by 
the  board  of  directors  or  by  stockholders  holding  one  tenth 
of  the  capital,  was  held  insufficient,  although  it  was  shown 
that  he  had  authority  from  stockholders  holding  the  required 
amount  of  stock. 

Stevens  vs.  Eden  Aleeting-house  Soc.,  12  Vt.  688,  holding 
that  where  a  by-law  required  notice  to  be  posted,  parol  proof 
of  such  posting  was  incompetent  unless  the  written  notice  was 
shown  to  have  been  lost. 

Swansea  Dock  Co.  vs.  Levian,  20  L.  J.  (Exch.)  447,  where 
a  notice  was  held  bad  because  the  statute  declared  it  should 
be  printed  in  a  newspaper  circulating  in  the  district  of  the 
principal  place  of  business,  while  in  this  case  there  was  no 
proof  that  the  paper  selected  ever  circulated  there.  Hence 
the  removal  of  directors  at  such  a  meeting  was  illegal. 

Swansea  Dock  Co.  vs.  Levian,  20  L.  J.  (Exch.)  447. 


318  INDUSTRIAL     CORPORATIONS 

If  all  the  stockholders  waive  notice,  the  meetings  will  be 
valid,  all  their  proceedings  will  be  binding. 

Authorities  supra. 

In  all  such  cases  each  member  must  have  a  notice,  which 
he  receives,  nor  will  physical  incapacity  excuse  giving  a  mem- 
ber notice. 

Notice  to  non-residents  by  letter  was  upheld  in  Stebbins 
vs.  Merritt  64,  Mass.  27.  For  dicta  to  the  effect  that  the 
notice  must  be  in  person ;  see  Tuttle  vs.  Michigan  Air  Line, 
35  Mich.  247. 

Stow  vs.  Wyse,  7  Conn.  214;  Stebbins  vs.  Merritt,  64 
Mass.  27. 

§  223.     Time  of  Service  of  Notice. 

Stockholders  must  be  served  with  notice  a  reasonable 
time  before  the  meeting.  If  there  is  a  customary  time  for  the 
meeting,  then  that  time  should  be  stated  in  the  notice. 

Re  Long  Island  R.  R.,  19  Wend.  37. 

Cf.  Covert  vs.  Rogers,  38  Mich.  363,  where  a  similiar  rule 
is  declared  as  to  notice  to  directors  of  their  meetings.  The 
Legislature  can  not  unreasonably  shorten  the  time  of  the 
next  meeting. 

Cassell  vs.  Lexington,  etc.  Co.,  9  S.  W.  Rep.  502  and 

701  (Ky.) 

A  reorganization  under  the  English  statute  will  not  be 
sustained  as  against  American  stockholders,  where  the  entire 
business  of  the  English  company  is  to  own  and  work  Ameri- 
can mines  and  the  by-laws  of  the  company  provide  for  a 
longer  notice  than  is  specified  in  the  English  statute.  The 
notice  of  the  meeting  to  reorganize  not  having  reached  the 
American  stockholders  in  time  to  attend  the  meeting,  the 
American  courts  will  not  sustain  the  reorganization. 

Brown   vs.   Republican,  etc.   Mines,   55   Fed.   Rep.   7; 

Shelby  R.  R.  vs.  Louisville,  etc.  R.  R.,  12  Bush  (Ky.) 

62. 

§  224.    Waiver  of  Notice. 

Notice  is  a  personal  right  that  can  be  waived  at  any  time 


INCORPORATION     OF     COMPANIES  319 

by  any  stockholder ;  where  doubt  arises,  it  is  a  safe  plan  to 
have  all  the  stockholders  sign  a  waiver  of  notice.  And  even 
if  all  are  not  present,  they  may  subsequently  ratify  the  acts 
of.  those  present  at  the  meeting. 

The  acts  of  a  meeting  are  valid  though  held  without  no- 
tice, if  all  are  present  or  subsequently  ratify  and  approve  of 
the  action. 

Stutz  vs.  Handley,  41  Fed.  Rep.  531 ;  affirmed  as  to  this 
point,  but  reversed  as  to  others  in  Handley  vs.  Stutz, 
139  U.  S.  417. 

A  party  accepting  the  benefit  of  a  contract  for  a  long  time 
can  not  repudiate  it  on  the  ground  that  the  calls  for  the  meet- 
ings of  the  executive  committee  and  of  the  stockholders  which 
authorized  the  contract  were  insufficient,  nor  can  he  set  up 
in  such  a  case  that  the  directors  had  not  authorized  the 
contract. 

Union  Pac.  Ry.  vs.  Chicago,  etc.  Ry.,  51  Fed.  Rep.  309. 

A  stockholder  who  takes  part  in  a  meeting  can  not  after- 
ward object  that  it  was  not  properly  called. 

Weinburgh  vs.  Union,  etc.  Co.,  37  Atl.  Rep.  1026  (N.  J.). 

Objections  to  the  regularity  of  the  notice  which  was  given 
are  waived  if  all  are  present  at  the  meeting  and  do  not  ob- 
ject to  such  irregularity. 

Stebbins  vs.  Merritt,  64  Mass.  27. 

Richardson  vs.  Vermont,  etc.,  44  Vt.  613,  holding  that  ob- 
jections to  the  proceedings  of  a  meeting  called  by  a  notice 
which  did  not  state  what  its  object  was  had  been  waived 
by  a  ratification  at  a  later  meeting. 

Jones  vs.  Milton,  etc.  Turnp.,  7  Ind.  547,  where  the  stock- 
holders not  notified  appeared  and  voted  by  proxy. 

Kenton  Furnace  Co.  vs.  McAlpin,  5  Fed.  Rep.  737. 

Where  several  persons,  their  associates,  and  successors, 
are  declared  to  be  a  corporation,  one  of  them  with  new  parties 
may  meet,  organize,  adopt  by-laws,  etc.,  without  the  capital 
being  first  subscribed  and  without  the  others,  if  they  do  not 
object. 

McGinty  vs.  Athol,  etc.  Co.,  155  Mass.  183. 


320  INDUSTRIAL     CORPORATIONS 

Notice  may  be  waived. 

People  vs.  Twaddell,  18  Hun.  427. 

Questions  like  increasing-  the  capital  stock  are  vital,  and 
even  though  a  member  may  be  present,  yet  he  may  object  be- 
cause notice  was  not  given  to  others,  and  the  result  thereby 
have  been  changed. 

Jones  vs.  Concord,  etc.  R.  R.,  38  Atl.  Rep.  120  (N.  H.). 

It  is  a  presumption  of  law  that  notice  has  been  regularly 
given.  The  burden  of  proof  is  upon  him  who  contends  to  the 
contrary  to  show  the  meeting  was  irregular. 

McDaniels   vs.    Flower   Brook   Mfg.   Co.,  22  Vt.  274; 

Porter  vs.  Robinson,  30  Hun.  209;  Sargent  vs.  Webster, 

54  Mass.  497;  South  School,  etc.  vs.  Blakeslie,  13  Conn. 

227,  235 ;  Lane  vs.   Brainerd,  30  Conn.  565 ;  Pitts  vs. 

Temple,  2  Mass.  538. 

Wells  vs.  Rodgers,  60  Mich.  525,  holding  that  notice  is 
presumed,  and  the  burden  of  proof  in  attacking  the  legality 
of  the  meeting  is  on  the  plaintiff. 

All  the  stockholders  are  presumed  to  have  had  notice  of 
a  meeting  that  has  been  held. 

Beardsley  vs.  Johnson,  121  N.  Y.  224;  Cf.  Wiggin  vs. 
Freewill,  etc.  Church,  49  Mass.  301,  312. 

§  225.     Adjourned  Meeting. 

An  adjourned  meeting  is  not  a  new  meeting,  requiring 
notice,  unless  deferred  long  after,  but  only  a  continuation  of 
the  old  meeting.  Any  business  may  be  done  at  an  adjourned 
meeting  that  might  have  been  done  at  their  regular  original 
meeting. 

Approved  in  State  vs.  Cronan,  49  Pac.  Rep.  41  (Nev.)  ; 
Granger  vs.  Grubb,  7  Phila.  350;  Farrar  vs.  Perley,  7 
Me.  404;  Scadding  vs.  Lorant,  3  H.  L.  Cas.  418. 

Cf.  People  vs.  Batchellor,  22  N.  Y.  128,  where  the  New 
York  City  board  of  aldermen  appointed  a  day  for  the  election 
of  a  city  officer.  At  a  subsequent  stated  meeting  this  reso- 
lution was  rescinded,  and  then  an  election  was  thereupon  held. 
Held  that  the  election  was  void,  as  some  members  were  ab- 


INCORPORATION     OF     COMPANIES  321 

sent  from  the  former  meeting  and  had  no  notice  of  the  elec- 
tion.   A  board  of  aldermen  can  not  elect  an  assessor,  and  then 
at  an  adjourned  meeting  reconsider  and  elect  some  one  else. 
State  vs.  Phillips,  79  Me.  506. 

See  also  Hardenburgh  vs.  Farmers',  etc.  Bank,  3  N.  J.  Eq. 
68,  where  the  stockholders  at  the  first  meeting  proceeded  to 
an  election  in  spite  of  an  adjournment  by  the  commissioners, 
and  the  election  was  upheld.  A  meeting  adjourned  for  want 
of  a  quorum  may  at  the  adjourned  meeting  proceed  to  busi- 
ness, if  a  quorum  is  present,  and  no  notice  of  the  adjourned 
meeting  is  necessary  where  the  charter  or  by-laws  provide 
for  such  adjournment. 

Smith  vs.  Law,  21  N.  Y.  296,  involving  a  meeting  of  the 
board  of  directors. 

§  226.     Power  of  Corporators  to  Wind  Up  Its  Affairs. 

A  private  corporation  may  sell  all  the  corporate  property 
and  wind  up  its  entire  business,  even  though  the  minority  dis- 
sent, when,  in  the  exercise  of  a  sound  discretion  of  the  ma- 
jority, it  is  considered  wise  to  do  it. 

Treadwell  vs.  Manufacturing  Co.,  7  Gray  (Mass.)  393; 
Taylor  vs.  Earle,  8  Hun.  (N.  Y.)  1 ;  Brown  vs.  Win- 
nisimmet  Co.,  11  Allen  (Mass.)  326;  Hendee  vs.  Pinker- 
ton,  14  Allen  (Mass.)  381 ;  1  Gumming  Cas.  Priv.  Corp. 
336;  State  vs.  Western  Irr.  Canal  Co.,  40  Kan.  96;  19 
Pac.  349;  Leggett  vs.  Banking  Co.,  1  N.  J.  Eq  541; 
Dupee  vs.  Water- Power  Co.,  114  Mass.  37;  Aurora  A. 
&  H.  Soc.  vs.  Paddock,  80  111.  263;  Benbow  vs.  Cook, 
115  N.  C.  324;  20  S.  E.  453;  Reynolds'  Widow  vs.  Com- 
missioners, 5  Ohio  204;  Miners'  Ditch  Co.  vs.  Zeller- 
bach,  37  Cal.  543 ;  Simpson  vs.  Hotel  Co.,  8  H.  L.  Cas. 
712. 

"All  civil  corporations,  .  .  .  unless  expressly  re- 
strained by  the  act  which  establishes  them,  or  by  some  sub- 
sequent act,  have,  and  always  have  had,  an  unlimited  control 
over  their  respective  properties,  and  may  alienate  in  fee,  or 
make  what  estates  they  please,  for  years,  for  life,  or  entail, 
as  fully  as  any  individual  may  do  with  respect  to  his  own 
property." 

1  Kyd.  Corp.  108. 

22 


322  INDUSTRIAL     CORPORATIONS 

The  majority  represent  the  corporation  and  they  can  not 
go  beyond  the  limit  conferred  by  the  charter.  The  majority 
can  not  dissolve  the  corporation  before  the  expiration  of  the 
time  expressed  in  the  charter.  The  dissolution  must  be 
reached  by  the  consent  of  all  the  stockholders  unless  other- 
wise expressed  in  the  charter. 

Barton  vs.  Association,  114  Ind.  226,  16  N.  E.  486. 

Neither  can  the  majority  impose  an  obligation  on  a  stock- 
holder other  than  his  contract. 

McLaughlin  vs.  Railroad  Co.,  8  Mich.  100. 

Neither  cart  the  majority  discriminate  against  the  other 
stockholders  and  in  favor  of  themselves,  nor  commit  any  fraud 
against  the  minority.  If  so,  a  court  of  equity  will  set  it  aside 
upon  an  action  by  the  minority. 

Miner  vs.  Ice  Co.,  93  Mich.  97;  53  N.  W.  218. 

"It  is  no  longer  doubted,  either  in  England  or  the  United 
States,  that  courts  of  equity,  in  both,  have  a  jurisdiction  over 
corporations,  at  the  instance  of  one  or  more  of  their  members, 
to  apply  preventive  remedies  by  injunction,  to  restrain  those 
who  administer  them  from  doing  acts  which  would  amount 
to  a  violation  of  charters,  or  to  prevent  any  misapplication 
of  their  capital  or  profits  which  mignt  result  in  lessening  the 
dividends  of  stockholders,  or  the  value  of  their  shares,  as 
either  may  be  protected  by  the  franchise  of  a  corporation,  if 
the  acts  intended  to  be  done  create  what  is  in  the  law  de- 
nominated a  breach  of  trust.  And  the  jurisdiction  extends  to 
inquire  into,  and  to  enjoin,  as  the  case  may  require  that  to 
be  done,  any  proceedings  by  individuals,  in  whatever  char- 
acter they  may  profess  to  act,  if  the  subject  of  complaint  is  an 
imputed  violation  of  a  corporate  franchise  or  the  denial  of  a 
right  growing  out  of  it,  for  which  there  is  not  an  adequate 
remedy  at  law." 

Doud  vs.  Railway  Co.,  65  Wis.  108 ;  25  N.  W.  533. 

No  question  is  better  settled  than  that  if  the  majority 
stockholders  do  or  threaten  to  do  ultra  vires  acts  in  violation 
of  the  rights  of  other  stockholders,  and  the  proper  officers 
refuse  to  take  action  to  stop  it  or  reverse  it,  or  if  the  directors 
or  other  agents  of  the  corporation  do  or  threaten  to  do  acts 


INCORPORATION     OF     COMPANIES  323 

in  violation  of  their  trust  and  the  majority  acquiesce  or  refuse 
to  take  action  to  stop  it,  or  if  injury  is  done  to  the  corpora- 
tion by  extrinsic  parties  and  the  majority  of  the  stockholders 
or  proper  officers  refuse  to  act,  then  a  minority  of  stockholders 
or  one  stockholder  can  maintain  an  action  to  redress  the 
wrong  or  injury  thus  perpetrated. 

Atwood  vs.  Merry  weather,  L.  R.  5  Eq.  464,  note;  1 
Gumming  Cas.  Priv.  Corp.  717;  Simpson  vs.  Hotel  Co., 
8  H.  L.  Cas.  712 ;  Menier  vs.  Telegraph  Works,  9  Ch. 
App.  350;  1  Gumming  Cas.  Priv.  Corp.  722;  Booth  vs. 
Robinson,  55  Md.  419;  Mason  vs.  Harris,  11  Ch.  Div. 
97;  1  Cumming  Cas.  Priv.  Corp.  731 ;  Russell  vs  Water- 
works Co.,  L.  R.  20  Eq.  4/4;  1  Cumming  Cas.  Priv. 
Corp.  725 ;  Dodge  vs.  Woolsey,  18  How.  331 ;  1  Cum- 
ming Cas.  Priv.  Corp.  739;  Chicago  City  Ry.  Co.  vs. 
Allerton,  18  Wall.  233 ;  1  Cumming  Cas.  Priv.  Corp. 
752;  Zabriskie  vs.  Railroad  Co.,  23  How.  381;  City  of 
Davenport  vs.  Dows,  18  Wall.  626;  1  Cumming  Cas. 
Priv.  Corp.  754;  Hawes  vs.  City  of  Oakland,  104  U.  S. 
450;  1  Cumming  Cas.  Priv.  Corp.  756;  Nathan  vs. 
Tompkins,  82  Ala.  437;  2  South.  747;  Peobody  vs 
Flint,  6  Allen  (Mass.)  52;  1  Cumming  Cas.  Priv.  Corp. 
795 ;  Brewer  vs.  Boston  Theater,  104  Mass.  378 ;  Miner 
vs.  Ice  Co.,  93  Mich.  97;  53  N.  W.  218;  2  Cumming  Cas. 
Priv.  Corp.  234;  Shep.  Cas.  Corp.  181;  City  of  Chicago 
vs.  Cameron,  120  111.  447;  11  N.  E.  899;  Bailey  vs.  Gas- 
light Co.,  27  N.  J.  Eq.  196;  2  Cumming  Cas.  Priv.  Corp. 
207;  Wayne  Pike  Co.  vs.  Hammons,  129  Ind.  368;  27 
N.  E.  487 ;  Allen  vs.  Curtis,  26  Conn.  456 ;  Slattery  vs. 
Transportation  Co.,  91  Mo.  217;  4  S.  W.  79;  Greaves 
vs.  Gouge,  69  N.  Y.  154;  Brinckerhoff  vs.  Bostwick,  88 
N.  Y.  52;  Black  vs.  Huggins,  2  Tenn.  Ch.  780;  Cogswell 
vs.  Bull,  39  Cal.  320;  Hazard  vs.  Durant,  11  R.  I;  195. 

In  Meeker  vs.  Iron  Co.,  17  Fed.  48,  it  is  said: — 

"The  holders  of  a  majority  of  the  stock  of  a  corporation 
may  legally  control  the  company's  business,  prescribe  its 
general  policy,  make  themselves  its  agents,  and  take  reasonable 
compensation  for  their  services.  But,  in  thus  assuming  the 
control,  they  also  take  upon  themselves  the  correlative  duty  of 
diligence  and  good  faith.  They  can  not  lawfully  manipulate 
the  company's  business  in  their  own  interests,  to  the  injury 
of  other  stockholders." 


324  INDUSTRIAL     CORPORATIONS 

It  must  not  be  understood  that  the  minority  have  the  legal 
right  to  complain  of  every  action  of  the  majority, — no  such 
broad  right  exists,  but  some  kind  of  fraud  or  oppression  must 
appear,  otherwise  the  will  of  the  majority  must  govern.  As 
was  said  in  Gamble  vs.  Water  Co.,  123  N.  Y.  91 ;  25  N.  E. 
201:— 

"The  court  would  not  be  justified  in  interfering,  even  in 
doubtful  cases,  where  the  action  of  the  majority  might  be 
susceptible  of  different  constructions.  To  warrant  the  inter- 
position of  the  court  in  favor  of  the  minority  shareholders 
in  a  corporation  or  joint-stock  association,  as  against  the  con- 
templated action  of  the  majority,  where  such  action  is  within 
the  corporate  powers,  a  case  must  be  made  out  which  plainly 
shows  that  such  action  is  so  far  opposed  to  the  true  interests 
of  the  corporation  itself  as  to  lead  to  the  clear  inference  that 
no  one  thus  acting  could  have  been  influenced  by  any  honest 
desire  to  secure  such  interests,  but  that  he  must  have  acted 
with  an  intent  to  subserve  some  outside  purpose,  regardless 
of  the  consequences  to  the  company,  and  in  a  manner  incon- 
sistent with  its  interests.  Otherwise  the  court  might  be 
called  upon  to  balance  probabilities  of  profitable  results  to 
arise  from  the  carrying  out  of  the  one  or  the  other  of  different 
plans  proposed  by  or  on  behalf  of  different  shareholders  in  a 
corporation,  and  to  decree  the  adoption  of  that  line  of  policy 
which  seemed  to  it  to  promise  the  best  results,  or  at  least  to 
enjoin  the  carrying  out  of  the  opposite  policy.  This  is  no 
business  for  any  court  to  follow." 

The  majority  of  those  who  appear  at  a  lawful  meeting  can 
transact  all  business,  nor  is  it  necessary  that  the  number  pres- 
ent be  a  majority  of  the  whole  of  numbers  of  members. 

Ex  parte  Willcox,  7  Cowen  402,  410,  note  ;  Madison  Ave. 

Baptist  vs.  Baptist  Church  in  Oliver  St.,  5  Robt.  649; 

Treadwell  vs.  Salisbury  Manf.  Co.,  7  Gray  393 ;  Faulds 

vs.  Yates,  57  111.  416;  S.  C.  11  Am.  Rep.  24;  Gregory  vs. 

Pritchett,  33   Beav.  595 ;  Brewer  vs.   Boston  Theater, 

104  Mass.  378. 

Majority  at  common  law  means  the  major  part  of  those 
members  present  at  a  corporate  meeting.  However,  there  is 
one  exception ;  i.  e.,  there  must  be  more  than  one ;  two  or  more 
is  sufficient. 

"There  is  a  distinction  taken  between  a  corporate  act  to  be 


INCORPORATION     OF     COMPANIES  325 

done  by  a  select  and  definite  body,  as  a  board  of  directors,  and 
one  to  be  performed  by  the  constituent  members.  In  the 
latter  case,  a  majority  of  those  who  appear  may  act,  but  in 
former  a  majority  of  the  definite  body  must  be  present,  and 
then  a  majority  of  the  quorum  may  decide.  This  is  the  gen- 
eral rule  on  the  subject,  and,  if  any  corporation  has  a  different 
modification  of  the  expression  of  the  binding  will  of  the  cor- 
poration, it  arises  from  the  special  provisions  of  the  act  or 
charter  of  incorporation." 

2  Kent,  Comm.  293 ;  1  Kyd,  Corp.  401 ;  Ex  parte  Will- 
cocks,  7  Cow.  (N.  Y.)  402,  410;  Field  vs  Field,  9  Wend. 
(N.  Y.)  394,  403. 

The  majority  can  not  amend  the  fundamental  essentials 
of  the  charter. 

Illinois  River  R.  Co.  vs.  Zimmer,  20  111.  654;  Banet  vs. 
Railroad  Co.,  13  111.  504;  Hartford  &  N.  H.  R.  Co.  vs. 
Croswell,  5  Hill  (N.  Y.)  383;  1  Gumming  Cas.  Priv. 
Corp.  894 ;  Pacific  R.  R.  vs.  Renshaw,  18  Mo.  210 ;  Pa- 
cific R.  R.  vs.  Hughes,  22  Mo.  291. 

To  illustrate:  In  Banet  vs.  Alton  &  S.  R.  Co.,  it  was 
said : — 

"An  alteration  in  a  charter  may  be  so  extensive  as  to  work 
a  dissolution  of  the  contract  of  subscription.  An  amendment 
which  essentially  changes  the  nature  or  objects  of  a  corpora- 
tion will  not  be  binding  on  the  stockholders.  A  corporation 
formed  for  the  purpose  of  constructing  a  railroad  can  not  be 
converted  into  a  company  to  construct  an  improvement  of  a 
different  character,  without  the  consent  of  all  the  corporators. 
A  road  intended  to  secure  the  advantages  of  a  particular  line 
of  travel  and  transportation  can  not  be  so  changed  as  to  de- 
feat that  general  object.  The  corporation  must  remain  sub- 
stantially the  same,  and  be  designed  to  accomplish  the  same 
general  purpose  and  subserve  the  same  general  interests.  But 
such  amendment  of  the  charter  as  may  be  considered  useful 
to  the  public  and  beneficial  to  the  corporation,  and  which  will 
not  divert  its  property  to  new  and  different  purposes,  may  be 
made,  without  absolving  the  subscribers  from  their  engage- 
ments. The  straightening  of  the  line  of  the  road,  the  location 
of  a  bridge  at  a  different  place  on  a  stream,  or  deviations  in 
the  route  from  an  intermediate  point,  will  not  have  the  effect 
to  destroy  or  impair  the  contract  between  the  corporation 
and  the  subscribers.  We  regard  these  conclusions  as  reason- 


326  INDUSTRIAL     CORPORATIONS 

able  and  just,  and  as  well  calculated  to  facilitate  the  con- 
struction of  improvements  and  promote  the  best  interests 
of  the  public  and  of  stockholders.  The  incidental  benefits 
which  a  few  subscribers  may  realize  from  a  particular  loca- 
tion ought  not  to  interfere  with  the  general  interests  of  the 
public  and  of  the  great  mass  of  the  corporators.  These  in- 
terests of  the  public  and  of  the  corporation  may  with  propriety 
be  consulted  and  encouraged,  especially  where  the  alteration 
will  not  operate  to  depreciate  the  value  of  the  stock.  A 
shareholder  has  no  cause  to  complain  of  the  loss  of  a  mere 
incidental  benefit,  which  formed  no  part  of  the  consideration 
of  his  contract  of  subscription." 

The  question  arises  whether  the  State  in  conjunction  with 
a  majority  can  change  the  charter  under  the  legal  reservation 
of  the  power  to  amend,  alter  or  repeal  the  charter  by  the 
State,  some  courts  holding  that  the  charter  can  be  thus 
changed.  In  New  York  it  was  held: — 

7'When  it  is  expressly  provided  between  the  Legislature,  on 
the  one  hand,  and  the  corporation  on  the  other,  as  part  of  the 
original  contract  of  incorporation,  that  the  former  may  change 
or  modify  or  abrogate  it,  or  any  portion  of  it,  it  can  not  be 
said  that  any  contract  is  broken  or  infringed  when  the  power 
thus  reserved  is  exercised  with  the  consent  of  the  artificial 
body  of  whose  original  creation  and  existence  such  reserva- 
tion formed  an  essential  part.  The  stockholder  can  not  say 
that  he  became  a  member  of  the  corporation  on  the  faith  of  an 
agreement  made  by  the  Legislature  with  the  corporation  that 
the  original  act  of  incorporation  should  undergo  no  change 
except  with  his  assent.  Such  a  position  might  be  asserted 
with  more  plausibility  if  there  was  an  absence  of  a  clause 
in  the  original  act  of  incorporation  providing  for  an  alteration 
in  its  terms. 

"In  such  a  case,  it  might,  perhaps,  be  maintained  that  there 
was  a  strong  implication  that  the  charter  should  remain 
inviolate,  and  that  the  holders  of  shares  invested  their 
property  in  the  corporation  relying  upon  a  contract  entered 
into  between  it  and  the  Legislature  that  the  provisions  of  the 
act  creating  it  should  remain  unchanged.  But  it  is  difficult 
to  see  how  such  a  construction  can  be  put  on  a  contract 
which  contains  an  express  stipulation  that  it  shall  be  subject 
to  amendment  and  alteration.  If  it  be  asked  by  whom  such 
amendment  or  alteration  is  to  be  made,  the  answer  is  obvious: 


INCORPORATION     OF     COMPANIES  327 

By  the  parties  to  the  contract, — the  Legislature  on  the  one 
hand,  and  the  corporation  on  the  other ;  the  former  expressing 
its  intentions  by  means  of  a  legislative  act,  and  the  latter 
assenting  thereto  by  a  vote  of  the  majority  of  the  stock- 
holders, according  to  the  provisions  of  its  charter.  Is  it  noth- 
ing more  than  the  ordinary  case  of  a  stipulation  that  one  of 
the  parties  to  a  contract  may  vary  its  terms  with  the  assent 
of  the  other  contracting  party." 

White  vs.  Railroad  Co.,  14  Barb.  (N.  Y.)  560;  Schen- 
ectady  &  S.  Plank-Road  Co.  Thatcher,  11  N.  Y.  102. 
Buffalo  &  N.  Y.  C.  R.  Co.  vs.  Dudley,  14  N.  Y.  336. 

Courts  of  equal  respectability  have  held  the  opposite  view, 
which  has  the  great  weight  of  authority. 

Zabraskie  vs.  Hackensack  &  N.  Y.  R.  Co.,  18  N.  J.  Eq. 
178;  1  Cumming  Cas.  Priv.  Corp.  781. 

The  latter  view  takes  root  in  the  Dartmouth  College  Case 
vs.  Woodward,  4  Wheat.  (U.  S.)  518,  followed  by  a  long  line 
of  decisions,  as  follows : — 

1  Cumming  Cas.  Priv.  Corp.  490;  W.  D.  Smith  Cas.  Corp. 
148;  Shep.  Cas.  Cor.  248;  Hazen  vs.  Bank,  1  Sneed 
(Tenn.)  115;  Zimmer  vs.  State,  30  Ark.  677;  Downing 
vs.  Board,  129  Ind.  443;  28  N.  E.  123,  614;  Ruggles  vs. 
People,  91  111.  256;  Illinois  Cent.  R.  Co.  vs.  People,  95 
111.  313,;  State  vs.  Greer,  78  Mo.  188;  Hamilton  vs. 
Keith,  5  Bush  (Ky.)  458;  Gary  Libfary  vs.  Bliss,  151 
Mass.  364;  25  N.  E.  92. 

§  227.     Notice  to  Officers  as  Notice  to  the  Company. 

It  is  a  general  rule  that  an  officer  or  agent  of  the  corpora- 
tion who  has  knowledge  of  the  facts  of  a  transaction  which  was 
acquired  while  he  was  acting  for  the  company  within  the 
scope  of  his  authority  and  duties,  is  notice  to  the  corporation. 
This  is  a  rule  of  agency.  The  rule  itself  excludes  the  notion 
of  knowledge  by  an  agent  while  acting  in  his  private  capacity, 
for  that  a  board  of  directors  can  not  receive  notice  that  will 
be  binding  on  the  corporation  except  when  they  are  acting 
as  a  board.  The  company  can  not  be  affected  by  notice  in 
their  individual  capacity. 

Bank  of  U.  S.  Davis,  2  Hill  (N.  Y.)  451;  Buttrick 
vs.  Railroad,  62  N.  H.  413;  New  Haven,  M.  &  W.  R. 


328  INDUSTRIAL     CORPORATIONS 

Co.,  vs.  Town  of  Chatham,  42  Conn.  465 ;  Farrell 
Foundry  vs.  Dart,  26  Conn.  376;  Farmers'  &  Citizens' 
Bank  vs.  Payne,  25  Conn.  444;  Saint  vs.  Manufactur- 
ing Co.,  95  Ala.  362,  10  South.  539;  Atlantic  Cotton 
Mills  vs.  Indian  Orchard  Mills,  147  Mass.  268  17  N.  E. 
496;  Huron  Printing  &  Binding  Co.  vs.  Kittleson,  4  S. 
D.  520;  57  N.  W.  233. 

"Notice  to  one  agent  of  a  corporation  with  respect  to  a 
matter  covered  by  his  agency  must  be  as  efficacious  as  to  its 
directors  or  to  its  president,  since  these  also  are  only  agents, 
with  larger  powers  and  duties,  it  is  true,  but  not  more  fully 
charged  with  respect  to  the  particular  thing  than  he  whose 
authority  is  confined  to  that  one  thing." 

Saint  vs.  Manufacturing  Co.,  95  Ala.  362,  10  South, 
539,  544;  Merchants'  Nat.  Bank  vs.  Lovitt,  114  Mo. 
519,  21  S.  W.  825  ;  Johnston  vs.  Shortridge,  93  Mo.  277,  6 
S.  W.  64;  Frenkel  vs.  Hudson,  82  Ala.  158,  2  South. 
758;  Wickersham  vs.  Zinc  Co.,  18  Kan.  481;  Inver- 
arity  vs.  Bank,  139  Mass.  332;  1  N.  E.  282;  Casco 
Nat.  Bank  vs.  Clark,  139  N.  Y.  307;  34  N.  E.  908. 

§  228.     Stockholders'  Dealings  with  the  Corporation. 

Stockholders  of  a  corporation  are  separate  and  distinct 
from  the  corporation,  as  has  heretofore  been  pointed  out,  and 
have  the  same  rights  to  contract  with  the  corporation  as  a 
stranger  has.  The  only  limitation  upon  their  acts  is  that  they 
commit  no  fraud  and  they  have  as  much  right  and  may  enforce 
their  contracts  in  like  manner  in  which  a  stranger  can. 

Lexington  Life,  Fire  &  Marine  Ins.  Co.  vs.  Page,  17 
B.  Mon.  412. 

And  a  stockholder  who  is  a  creditor  may  take  a  mortgage 
to  secure  the  debt. 

Gorden  vs.  Preston,  1  Watts  (Pa'.)  385. 

They  may  be  a  preferred  creditor. 

Lexington  Life,  Fire  &  Marine  Ins.  Co.  vs.  Page,  supra. 

§  229.     Fiduciary  Relation  of  Officers. 

The  courts  have  used  various  terms  to  express  the  rela- 
tion of  the  officers  of  a  corporation  with  the  corporation,  such 
as  trustees,  agents,  mandataries,  etc.,  but  they  all  agree  that 


INCORPORATION     OF     COMPANIES  329 

whatever  may  be  the  name  used  to  express  it,  that  relation 

is  a  fiduciary  relation. 

1    Mor.   Corp.   516;  note;   53   Am.   Dec.  637;   Wayne 
Pike  Co.  vs.  Hammons,   129  Ind.  368;  27  N.   E.  487. 

"The  liability  of  officers  to  the  corporation  for  damages 
caused  by  negligent  or  unauthorized  acts  rests  upon  the 
common-law  rule,  which  renders  every  agent  liable  who  vio- 
lates his  authority  or  neglects  his  duty  to  the  damage  of  his 
principal." 

North  Hudson  Mut.  Buld'g  &  Loan  Ass'n.  vs.  Childs, 
82  Wis.  460;  52  N.  W.  600,  605. 

"Bank  directors  are  often  styled  'trustees,'  but  not  in  any 
technical  sense.  The  relation  between  the  corporation  and 
them  is  rather  that  of  principal  and  agent." 

Briggs  vs.  Spaulding,  141  U.  S.  132;  11  Sup.  Ct.  924,  929. 

"It  is  by  no  means  a  well-settled  point  what  is  the  precise 
relation  which  directors  sustain  to  stockholders.  They  are, 
undoubtedly  said  in  many  authorities  to  be  trustees ;  but  that. 
as  I  apprehend,  is  only  in  a  general  sense,  as  we  term  an  agent 
or  any  other  bailee  intrusted  with  the  care  and  management 
of  the  property  of  another.  It  is  certain  that  they  are  not 
technical  trustees.  They  can  only  be  regarded  as  mandataries, 
— persons  who  have  gratuitiously  undertaken  to  perform  cer- 
tain duties,  and  who  are  therefore  bound  to  apply  ordinary 
care  and  diligence,  and  no  more." 

Per  Sharswood,  J.,  in  Spering's  Appeal,  71  Pa.  St.  11. 

From  this  relation,  their  duties  under  the  general  rules  of 
trustees  prohibit  them  from  making  any  profit  out  of  the 
corporation  that  is  not  enjoyed  in  common  by  all  the  other 
stockholders. 

Arkansas   Val.  Agr.   Soc.   vs.    Eicholtz,  45   Kan.    164 ; 

25  Pac.  613. 

"By  assuming  the  office,  he  undertakes  to  give  his  best 
judgment,  in  the  interests  of  the  corporation,  in  all  matters 
in  which  he  acts  for  it,  untrammeled  by  any  hostile  interest 
in  himself  or  others.  There  is  an  inherent  obligation  on  his 
part  that  he  will  in  no  manner  use  his  position  to  advance  his 
own  interest  as  an  individual,  as  distinguished  from  that  of 
the  corporation.  And  all  secret  profits  derived  by  him  in  any 
dealings  in  regard  to  the  corporate  enterprise  must  be  ac- 


330  INDUSTRIAL     CORPORATIONS 

counted  for  to  the  corporation,  even  though  the  transaction 
in  which  they  were  made  also  advantaged  the  corporation  of 
which  he  was  director." 

Bird  Coal  &  Iron  Co.  vs.  Humes,  157  Pa.  St.  278;  27 
Atl.  750;  Koehler  vs.  Oron  Co.,  2  Black,  715;  Farmers' 
&  Merchants'  Bank  vs.  Downey,  53  Cal.  466;  Parker  vs. 
Nickerson,  112  Mass.  195;  Wardell  vs.  Railroad  Co.,  103 
U.  S.  651;  Cook  vs.  Sherman,  20  Fed.  167;  Perry  vs. 
Cotton-Seed  Oil-Mill  Co.,  93  Ala.  364;  9  So.  217;  Flint 
&  P.  M.  Ry.  Co.  vs.  Dewey,  14  Mich.  477;  Rutland 
Electric  Light  Co.  vs.  Bates,  68  Vt.  579;  35  Atl.  480. 

Where  stockholders  were  held  barred  of  relief  by  reason 
of  laches. 

Compare  Keeney  vs.  Converse,  99  Mich.  316;  58  N. 
W.  325. 

To  illustrate :     Directors  by  reason  of  their  position  can 
not  have  security  for  their  debts  above  other  creditors  when 
the  concern  is  in  a  failing  condition. 
Koehler  vs.  Oron  Co.,  supra. 

A  bank  president  sought  to  prefer  himself  and  profit  by 
loaning  the  moneys  of  the  bank  to  an  individual  to  purchase 
lands  with  the  secret  agreement  that  he  should  have  a  part 
of  the  profits  when  the  lands  were  sold.  It  was  held  that 
the  profits  belonged  to  the  bank  and  that  the  bank  president 
was  guilty  of  breach  of  trust.  This  doctrine  does  not  apply 
where  there  is  no  duty  on  the  part  of  an  officer  of  a  corporation 
who  enters  into  the  transaction.  An  officer  or  director  may 
purchase  property  and  sell  it  to  the  corporation  for  profit  if 
he  was  not  under  any  obligation  to  the  corporation  when  he 
made  the  purchase. 

1  Mor.  Corp.  521 ;  St.  Louis,  Ft.  S.  &  W.  R.  Co.  vs. 

Chenault,  36  Kan.  51;  12  Pac.  303. 

This  doctrine  applies  to  an  execution  sale. 

Hoyle  vs.  Railroad  Co.,  54  N.  Y.  595. 

If  the  purchase  is  in  good  faith  as  an  execution  sale  on 
the  part  of  the  officer,  it  will  be  upheld. 

Saltmarsh  vs.  Spaulding,  147  Mass.  224;  17  N.  E.  316; 

Watt's  Appeal,  78  Pa.  370. 


INCORPORATION     OF     COMPANIES  331 

§  230.     Transactions  Between  the  Company  and  the  Officers 

Themselves. 

The  question  has  reached  the  courts  whether  an  officer 
of  a  corporation  can  act  the  part  of  the  corporation  and  also 
for  himself  in  a  single  given  transaction,  and  whether  they  can 
convey  the  property  of  the  corporation  to  themselves.  It 
would  appear  to  be  very  unreasonable  to  think  that  the  frail- 
ties of  humankind  could  resist  the  temptation  of  profit  to 
themselves,  where  a  transaction  was  to  be  made  where  self 
interest  was  arrayed  on  the  one  side  and  a  remote  interest  or 
duty  on  the  other.  As  self-protection  is  the  first  law  of  life, 
so  self-interest  is  the  first  law  of  business,  and  it  has  been 
held,  therefore,  that  such  an  act  can  not  be  done  for  want  of 
parties  to  the  transaction.  The  Supreme  Court  of  Wisconsin, 
in  passing  upon  the  question,  by  Orton,  J.,  said: — 

"The  idea  that  the  same  persons  constitute  different  identi- 
ties of  themselves  by  being  called  directors  or  officers  of  a 
corporation,  so  that,  as  directors  or  officers,  they  can  convey 
or  mortgage  to  or  contract  with  themselves  as  private  persons, 
is  in  violation  of  common  sense." 

Haywood  vs.  Lumber  Co.,  64  Wis.  639 ;  26  N.  W.  184, 
187;  People  vs.  Township  Board  of  Overyssel,  11  Mich. 
222. 
.  Miner  vs.  Ice  Co.,  93  Mich.  97,  53  N.  W.  218. 

One  way  by  which  an  agent  of  a  corporation  can  act  both 
for  himself  and  for  the  corporation  is  when  he  may  be  au- 
thorized to  do  so  by  a  superior  authority. 

1  Mor.  Triv.  Corp.  527;  Louisville,  N.  A.  &  C.  Ry.  Co. 

vs.  Carson,  151  111.  444;  38  N.  E.  140. 

Neither  can  a  person  act  for  himself  and  the  agent  of  tHe 
seller.  As  was  said  by  the  Supreme  Court  of  the  United 
States : — 

"The  two  positions  impose  different  obligations,  and  their 
union  would  at  once  raise  a  conflict  between  interest  and 
duty ;  and,  constituted  as  humanity  is,  in  the  majority  of  cases 
duty  would  be  overborne  in  the  struggle." 

Wardell  vs.  Railroad  Co.,  163  U.  S.  651. 


332  INDUSTRIAL     CORPORATIONS 

Relief  will,  therefore,  always  be  granted  to  the  aggrieved 
party,  if  application  to  the  court  is  seasonably  made. 
Wardell  vs.  Railroad  Co.,  supra. 

"They  can  not,  as  agents  or  trustees,  enter  into  nor  au- 
thorize contracts  on  behalf  of  those  for  whom  they  are  ap- 
pointed to  act,  and  then  personally  participate  in  the  benefits." 
Goodin  vs.   Canal   Co.,   18  Ohio  St.   169;  Wardell  vs. 
Railroad   Co.,   163  U.   S.  651;  United   States   Rolling- 
Stock  Co.  vs.  Atlantic  &  G.  W.  R.  Co.,  34  Ohio  St.  450; 
Flint  &  P.  M.  R.  Co.  vs.  Dewey,  14  Mich.  477;  Gilman, 
C  &  S.  R.  Co.  vs.  Kelly,  77  111.  426;  Ailing  vs.  Wenzell, 
27  111.  App.  511;  Gallery  vs.  National  Exch.  Bank,  41 
Mich.  169 ;  2  N.  W.  193. 

It  may  be  laid  down  as  a  general  proposition  with  regard 
to  the  profits  made  by  the  officers  of  a  corporation,  or  any 
other  agents  with  their  principal,  that  if  the  transaction  is  al- 
lowed to  stand  at  all,  it  will  be  most  carefully  scrutinized  by 
the  courts  if  an  action  is  brought  to  set  it  aside,  and  in  order 
to  stand  it  must  be  fair  and  free  from  fraud. 

Parker  vs.  Nickerson,  112  Mass.  195;  Smith -vs.  Asso- 
ciation, 78  Cal.  289;  20  Pac.  677;  Jones  vs.  Morrison, 
31  Minn.  140;  16  N.  W.  854;  Copeland  vs.  Manufactur- 
ing Co.,  47  Hun.  (N.  Y.)  235 ;  Davis  vs.  Railway  Co.. 
22  Fed.  883;  Miner  vs.  Ice  Co.,  93  Mich.  97;  53  N.  W! 
218. 

The  personal  interests  of  those  who  profit  out  of  such 
transactions  can  not  be  shielded  behind  the  fact  that  there 
are  other  parties  to  the  contract  who  occupy  no  fiduciary  re- 
lation to  the  corporation. 

Munson  vs.  Railway  Co.,  103  N.  Y.  58 ;  8  N.  E.  355. 

Instances  of  this  character  may  be  cited  where  a  contract 
is  made  with  a  firm,  and  one  of  the  firm  is  a  director  also  of 
the  corporation,  or  the  party  is  a  stockholder  in  two  corpora- 
tions and  transacts  the  business. 

Aberdeen  Ry.  Co.  vs.  Blakie,  1   Macq.  461 ;  Parker  vs. 

Nickerson,  112  Mass.  195;  Gilman,  C.  &  S.  R,  Co.  vs. 

Kelly,  77  111.  426;  Wardell  vs.  Railroad  Co.,  103  U.  S. 

651. 


INCORPORATION     OF     COMPANIES  333 

Nor  the  same  set  of  directors  of  two  corporations  can  not 
contract  as  between  transactions  of  the  two  corporations. 

United  States  Rolling-Stock  Co.  vs.  Atlantic  &  G.  W. 
R.  Co.,  34  Ohio  St.  450. 

Contract  with  a  construction  company  where  one  or 
more  of  the  directors  are  also  directors  of  the  construction 
company. 

See  Thomas  vs.  Railway  Co.,  2  Fed.  877;  Id.,  109  U.  S. 

522;  3  Sup.  Ct.  315;  Pearson  vs.  Railroad  Corp.,  62  N. 

H.  537 ;  Barr  vs.  Railroad  Co.,  125  N.  Y.  263 ;  26  N.  E. 

145;  Gilman,  C.  &  S.  R.  Co.  vs.  Kelly,  77  111.  426. 
A  long-  line  of  decisions,  however,  holds  that  directors  or 
other  officers  may  contract  with  the  corporation  if  the  cor- 
poration is  represented  by  other  agents,  and  the  contract  is 
a  necessary  contract  for  the  corporation,  sanctioned  by  the 
board  of  directors  (not  including  the  director  who  makes  the 
contract,  in  that  he  can  not  legally  act),  and  that  the  contract 
is  open,  fair,  and  free  from  fraud. 

1  Mor.  Priv.  Corp.  527;  Twin-Lick  Oil  Co.  vs   Marbury, 

91  U.  S.  587 ;  Barr  vs.  Plate-Glass  Co.,  6  C.  C.  A.  260 ; 

57  Fed.  86;  Beach  vs.  Miller,  130  111.  162;  22  N.  E.  464; 

Roseboom  vs.  Whittaker,   132  111.  81;  23  N.   E.  339; 

Mtillanphy  Sav.  Bank  vs.  Schott,  135  111.  665;  26  N.  E. 

640;  Louisville,  N.  A.  &  C.  Ry.  Co.  vs.  Carson,  151  111. 

444;  38  N.  E.  140;  Ten  Eyck  vs.  Railroad  Co.,  74  Mich. 

226;  41  N.  W.  905;  Hallam  vs.  Hotel  Co.,  56  Iowa  178; 

9  N.  W.  Ill ;  Garrett  vs.  Plow  Co.,  70  Iowa  697;  29  N. 

W.  395;  Buell  vs.  Buckingham  &  Co.,   16  Iowa  284; 

Gorder  vs.  Canning  Co.,  36  Neb.  548;  54  N.  W.  830; 

Parker  vs.  Nickerson,  137  Mass.  487;  Holt  vs.  Bennett, 

146  Mass.  437 ;  16  N.  E.  5 ;  Saltmarsh  vs.  Spaulding, 

147  Mass.  224;  17  N.  E.  316. 

In  Twin-Lick  Oil  Co.  vs.  Marbury,  91  U.  S.  587,  the 
Supreme  Court  of  the  United  States  said : — 

"It  can  not  be  maintained  that  any  rule  forbids  one  di- 
rector among  several  from  lending  money  to  the  corporation 
when  the  money  is  needed,  and  the  transaction  is  open  and 
otherwise  free  from  blame.  No  adjudged  case  has  gone  so 
far  as  this.  Such  a  doctrine,  while  it  would  afford  little  pro- 
tection to  the  corporation  against  actual  fraud  or  oppression, 


334  INDUSTRIAL     CORPORATIONS 

would  deprive  it  of  the  aid  of  those  most  interested  in  giving 
aid  judiciously  and  best  qualified  to  judge  of  the  necessity 
of  that  aid  and  of  the  extent  to  which  it  may  safely  be  given." 
Thomas  vs.  Railway  Co.,  109  U.  S.  522;  3  Sup.  Ct.  315 ; 
Hallam  vs.  Hotel  Co.,  56  Iowa  178;  9  N.  W.  Ill ;  Hub- 
bard  vs.  Investment  Co.,  14  Fed.  675 ;  Meeker  vs.  Iron 
Co.,  17  Fed.  48;  Wilkinson  vs.  Bauerle,  41  N.  J.  Eq. 
635;  7  Atl.  514;  Jones  vs.  Morrison,  31  Minn.  140;  16 
N.  W.  854. 

Some  State  courts,  however,  have  adopted  a  more  rigid 
rule ;  for  instance,  in  the  State  of  New  York,  it  is  held  that 
such  a  contract  is  voidable  at  the  option  of  the  corporation. 

Aberdeen  Ry.  Co.  vs.  Blakie,  1  Macq.  461 ;  Munson  vs. 
Railway  Co.,  103  N.  Y.  58 ;  8  N.  E.  355 ;  Hoyle  vs.  Rail- 
road Co.,  54  N.  Y.  314;  Pearson  vs.  Railroad  Corp.,  62 
N.  H.  537 ;  Hoffman  Steam  Coal  Co.  vs.  Cumberland 
Coal  &  Iron  Co.,  16  Md.  456. 

These  courts  hold  that  the  law  does  not  inquire  whether 
the  transaction  is  fair  or  not,  and  that  it  is  often  beyond  the 
power  of  the  court  to  know  or  inquire  into  the  motives,  or 
scrutinize  the  far-reaching  unfairness  of  the  transaction,'  and 
that  it  is  better  to  stop  it  in  its  inception. 

Contracts  of  the  character  just  mentioned,  even  though 
they  could  be  said  to  be  tainted  with  fraud,  if  within  the  power 
of  the  corporation  to  make  them,  are  not  per  sc  void,  but  are 
contracts  nevertheless  until  voided  at  the  election  of  the 
corporation  or  of  stockholders. 

Barr  vs.  New  York  L.  E.  &  W.  R.  Co.,  125  N.  Y.  263 ; 
26  N.  E.  145 ;  Twin-Lick  Oil  Co.  vs.  Marbury,  91  U.  S. 
587;  Hoyle  vs.  Railroad  Co.,  54  N.  Y.  314. 
Such  contracts  do  not  need  ratification,  and  if  they  were 
within  the  power  of  the  corporation  to  authorize  and  the  cor- 
poration takes  the  benefit  of  the  contract  with  knowledge  of 
the  facts,  they  are  bound  and  they  can  not  afterward  void  such 

contracts. 

Meeker  vs.  Iron  Co.,  17  Fed.  48;  Barr  vs.  Railroad  Co., 
125  N.  Y.  263 ;  26  N.  E.  145 ;  Louisville  N.  A.  &  C.  Ry. 
Co.  vs.  Carson,  151  111.  444;  38  N.  E.  140;  Welch  vs. 
Bank,  122  N.  Y.  177;  25  N.  E.  269;  Hotel  Co.  vs.  Wade, 
97  U.  S.  13. 


INCORPORATION     OF     COMPANIES  335 

Should  the  corporation  at  any  time  desire  to  void  a  contract 
of  this  character,  they  must  act  promptly  upon  discovery  of 
the  fraud  and  within  a  reasonable  time,  otherwise  they  will  be 
barred  by  laches. 

Twin-Lick  Oil  Co.  vs.  Marbury,  91  U.  S.  587;  United 
States  Rolling-Stock  Co.  vs.  Atlantic  &  G.  W.  R.  Co., 
34  Ohio  St.  450;  Keeney  vs.  Converse,  99  Mich.  316; 
58  N.  W.  325. 

Where  a  contract  is  entered  into  and  all  who  are  inter- 
ested in  the  corporation  concur  and  the  property  is  kept  and 
used,  the  rule  stated  does  not  apply. 

Battelle  vs.  Pavement  Co.,  33  Minn.  89;  33  N.  W.  327; 

Barr  vs.  Glass  Co.,  6  C.  C.  A.  260;  57  Fed.  86. 

If  the  contract  is  voided  and  the  corporation  has  received 
any  benefit  from  it,  the  corporation  will  be  compelled  to  ac- 
count for  whatever  benefit  it  has  received. 

Thomas  vs.  Railroad  Co.,  109  U.  S.  522;  3  Sup.  Ct.  315; 

Wardell  vs.  Railroad  Co.,  Fed.  Cas.  No.  17,  164. 

§  231.     Official  Liability  to  Corporation. 

All  of  the  subordinate  officers  of  a  corporation  as  well 
as  the  directors  are  supposed  to  act  toward  the  corporation 
in  perfect  good  faith,  and  if  they  abuse  their  position  of  trust 
toward  the  corporation,  they  are  liable  for  any  loss  the  cor- 
poration may  sustain.  This  abuse  may  arise  first  by  exceed- 
ing their  authority ;  second,  they  may  exceed  the  power  of  the 
corporation ;  third,  they  may  misapply  funds  of  the  corpora- 
tion;  fourth,  they  may  act  in  such  a  gross,  negligent,  and  in- 
attentive manner  toward  the  business  entrusted  to  them,  and 
become  liable  to  the  corporation.  They  are  not  liable  to  any 
extraordinary  efforts  any  more  and  no  further  than  a  reason- 
able, prudent  business  man  would  perform  his  own  duties 
and  attend  to  his  own  transactions.  They  are  not  liable  for 
thefts  nor  error  of  judgments  nor  mistakes  where  good  faith 
attends  the  transactions.  They  are  not  liable  for  the  omission 
of  other  officers  or  agents  where  they  are  not  connected  there- 
with or  interested  therein.  It  is  otherwise,  however,  if  they 
have  been  connected  with  them  in  the  transaction  or  inter- 


336  INDUSTRIAL     CORPORATIONS 

ested   therein.      For    illustration   of   mistakes   and   errors   of 
judgment: — 

Spering's  Appeal,  71   Pa.  St.  11;  10  Am.  Rep.  684;  1 

Gumming  Cas.  Priv.  Corp.  799;  Watts'  Appeal,  78  Pa. 

St.  370;  Hun.  vs.  Gary,  82  N.  Y.  65;  37  Am.  Rep.  546; 

Hodges  vs.  Screw  Co.,  1  R.  I.  312;  53  Am.  Dec.  624. 

They  are  not  liable  for  declaration  of  dividends  where  there 
is  no  bad  faith  attending. 

Excelsior  Petroleum  Co.  vs.  Lacey,  63  N.  Y.  422 ;  Van 
Dyck  vs.  McQuade,  86  N.  Y.  38 ;  Lexington  &  O.  R.  vs. 
Bridges,  7  B.  Mon.  (Ky.)  556. 

For  illustrations  of  non-liable  for  accident,  theft,  etc.* — 

Mowbrey  vs.  Antrim,  123  Ind.  24 ;  23  N.  E.  858. 
For  authorities  holding  directors  liable  for  breach  of  trust, 
and  making  them  personally  make  good  the  loss,  see, — 

Robinson  vs.  Smith,  3  Paige  (N.  Y.)  222;  24  Am.  Dec. 
212;  Heath  vs.  Railway  Co.,  Fed.  Cas.  No.  6,  306;  Perry 
vs.  Oil-Mill  Co.,  93  Ala.  364;  9  South  217;  Ellis  vs. 
Ward,  137  111.  509;  25  N.  E.  530;  Horn  Silver  Min.  Co. 
vs.  Ryan,  42  Minn.  196;  44  N.  W.  56;  Gratz  vs.  Redd, 
4  B.  Mon.  (Ky.)  178,  195;  Wilkinson  vs.  Bauerle,  41 
N.  J.  Eq.  635;7Atl.  514. 

For  ultra  vires  acts,  see — 

Hun  vs.  Gary,  82  N.  Y.  65 ;  37  Am.  Rep.  546 ;  Hodges 
vs.  Screw  Co.,  1  R.  I.  312;  53  Am.  Dec.  624. 

For  want  of  due  care : — 

Hodges  vs.  Screw  Co.,  supra ;  Williams  vs.  McDonald, 
37  N.  J.  Eq.  409. 

For  gross  negligence  and  intention: — 

Robinson  vs.  Smith,  3  Paige  (N.  Y.)  222;  24  Am.  Dec. 
212;  Brinckerhoff  vs.  Bostwick,  88  N.  Y.  152;  Marshall 
vs.  Bank,  85  Va.  676;  8  S.  E.  586;  17  Am.  St.  Rep.  84; 
Delano  vs.  Case,  17  111.  App.  531;  121  111.  247;  12  N.  E. 
676;  United  Society  of  Shakers  vs.  Underwood,  9  Bush 
(Ky.)  609;  15  Am.  Rep.  731 ;  President,  etc.  of  Bank  of 
Mutual  Redemption  vs.  Hill,  56  Me.  385 ;  Neall  vs.  Hill, 
16  Cal.  145 ;  Horn  Silver  Min.  Co.  vs.  Ryan,  42  Minn. 
196;  44  N.  W.  56;  Gratz  vs.  Redd,  4  B.  Mon.  (Ky.) 
178,  195. 


INCORPORATION     OF     COMPANIES  337 

For  a  case  where  negligence  was  the  question  and  officers 
and  directors  held  not  liable : — 

'Briggs  vs.  Spaulding,  141  U.  S.  132;  11  Sup.  Ct.  924; 
2  Gumming  Cas.  Priv.  Corp.  186;  Shep.  Cas.  Corp.  200. 

Where  there  was  no  bad  faith,  but  negligence: — 
Marshall  vs.  Bank,  85  Va.  676 ;  8  S.  E.  586. 

For  case  where  a  board  of  directors  sought,  in  violation 
of  their  own  duty,  to  shield  the  cashier  from  wrongful  acts 
and  avoid  liability  upon  his  bond. 
Minor  vs.  Bank,  1  Pet.  46. 

Officers  not  bound  for  extraordinary  care  and  diligence. 
Briggs  vs.  Spaulding,  141  U.  S.  132;  11  Sup.  Ct.  924; 
2  Cumming  Cas.  Priv.  Corp.  186;  Shep.  Cas.  Corp.  200. 

As  was  said  in  New  York : — 

''When  one  voluntarily  takes  the  position  of  trustee  or  di- 
rector of  a  corporation,  good  faith,  exact  justice,  and  public 
policy  unite  in  requiring  of  him  such  a  degree  of  care  and 
prudence,  and  it  is  a  gross  breach  of  duty — crassa  negligentia — 
not  to  bestow  them.  It  is  impossible  to  give  the  measure  of 
culpable  negligence  for  all  cases,  as  the  degree  of  care  required 
depends  upon  the  subjects  to  which  it  is  to  be  applied.  What 
would  be  slight  neglect  in  the  care  of  a  quantity  of  iron  might 
be  gross  neglect  in  the  care  of  a  jewel.  What  would  be  slight 
neglect  in  the  care  exercised  in  the  affairs  of  a  turnpike  cor- 
poration, or  even  of  a  manufacturing  corporation,  might  be 
gross  neglect  in  the  care  exercised  in  the  management  of  a 
savings  bank." 

Hun  vs.  Gary,  82  N.  Y.  65,  71 ;  37  Am.  Rep.  546. 

For  cases  of  gross  negligence. 

Hun  vs.  Cary,  supra;  Scott  vs.  Depeyster,  1  Edw.  Ch. 
(N.  Y.)  513,  543 ;  Spering's  Appeal,  71  Pa.  St.  11 ;  10  Am. 
Rep.  684;  1  Cumming  Cas.  Priv.  Corp.  799;  Hodges  vs. 
Screw  Co.,  1  R.  I.  312;  53  Am.  Dec.  624;  Marshall  vs. 
Bank,  85  Va.  676 ;  8  S.  E.  586 ;  Williams  vs.  McCay,  40 
N.  J.  Eq.  189;  North  Hudson  Mut.  Bldg.  &  Loan  Assn. 
vs.  Childs,  82  Wis.  460;  52  N.  W.  600,  605 ;  Horn  Silver 
Min.  Co.  vs.  Ryan,  42  Minn.  196;  44  N.  W.  56. 

In  Scott  vs.  Depeyster,  supra,  it  was  said : — 
"I  think  the  question  in  all  such  cases  should  and  must 
23 


338  INDUSTRIAL     CORPORATIONS 

necessarily  be  whether  they  (directors)  have  omitted  that 
care  which  men  of  common  prudence  take  of  their  own  con- 
cerns. To  require  more  would  be  adopting  too  rigid  a  rule, 
and  rendering  them  liable  for  slight  neglect;  while  to  require 
less  would  be  relaxing  too  much  the  obligation  which  binds 
them  to  vigilance  and  attention  in  regard  to  the  interests  of 
those  confided  their  care,  and  expose  them  to  liability  for 
gross  neglect  only,  which  is  very  little  short  of  fraud  itself." 
In  Spering's  Appeal,  supra,  Judge  Sharswood  said : — 
"They  (directors)  can  only  be  regarded  as  .mandataries, — 
persons  who  have  gratuitously  undertaken  to  perform  certain 
duties,  and  who  are  therefore  bound  to  apply  ordinary  skill 
and  diligence,  but  no  more." 

Directors  are  not  insurers  of  fidelity  of  agents. 

Briggs  vs.  Spaulding,  141  U.  S.  132;  11  Sup.  Ct.  924, 
929;  Shep.  Cas.  Corp.  200. 

§  232.     Remedies  Against  Officers  and  Agents  of  the  Cor- 
poration. 

Where  the  officers  or  agents  of  a  corporation  are  negligent 
and  act  fraudulently  or  wrongfully,  the  law  provides  a  remedy 
by  and  through  which  the  corporation  may  recover  such  com- 
pensation and  damages  as  would  make  good  the  loss  that  is 
sustained.  Proper  action  in  such  cases  is  before  a  court  of 
equity  to  call  such  an  officer  to  account  and  for  damages. 
For  cases  where  officers  have  been  compelled  to  account  for 
acts  of  negligence,  see, — 

Franklin  Fire  Ins.  Co.  vs.  Jenkins,  3  Wend.  (N.  Y.)  130; 

Horn  Silver  Min.  Co.  vs.  Ryan,  42  Minn.  196;  44  N.  W. 

56. 

Where  stockholders  have  called  the  directors  to  account 
for  breach  of  trust. 

Robinson  vs.  Smith,  3  Paige  (N.  Y.)  222 ;  24  Am.  Dec. 
212;  Brinckerhoff  vs.  Bostwick,  88  N.  Y.  52;  Hodges  vs. 
Screw  Co.,  1  R.  I.  312;  53  Am.  Dec.  624. 

It  is  more  proper  for  a  corporation  itself  to  bring  the  action, 
but  if  it  fails  to  do  so,  a  stockholder  may  sue  in  equity  for  the 
benefit  of  the  corporation. 

Robinson  vs.  Smith,  3  Paige  (N.  Y.)  222;  24  Am.  Dec. 


INCORPORATION     OF     COMPANIES  3.V  ' 

212;  Horn  Silver  Min.  Co.  vs.  Ryan,  42  Minn.  196;  44 
N.  W.  56;  Greaves  vs.  Gouge,  69  N.  Y.  154;  Brincker- 
hoff  vs.  Bostwick,  88  N.  Y.  52;  Hodges  vs.  Screw  Co., 
1  R.  I.  312;  53  Am.  Dec.  624;  Heath  vs.  Railway  Co., 
8  Blatchf.  347 ;  Fed.  Cas.  No.  6,306 ;  Hersey  vs.  Veazie, 
24  Me.  9;  Mussina  vs.  Goldthwaite,  34  Tex.  125  ;  Wayne 
Pike  Co.  vs.  Hammons,  129  Ind.  368 ;  27  N.  E.  487. 

There  is  no  privity  of  contract  between  the  directors  and 
stockholders.  The  directors'  relation  is  to  the  corporation, 
and  it  must  sue. 

Smith  vs.  Kurd,  12  Mete.  (Mass.)  371 ;  46  Am.  Dec.  690. 

The  same  benefit,  where  the  corporation  is  insolvent, 
reaches  over  and  belongs  to  creditors.  It  is  a  fund  to  which 
they  may  resort  in  such  case,  and  sue  for  negligence  of  fraud 
upon  the  corporation. 

§  232a.     Statute  of  Limitation. 

Statutes  of  limitation  do  not  run  against  fiduciary  relation, 
and  the  relation  of  officers  of  the  corporation  to  the  corpora- 
tion is  a  fiduciary  relation. 

Ellis  vs.  Ward,  137  111.  509;  25  N.  E.  530. 

§  233.     Contract  Liability  of  Officers  and  Agents. 

The  liability  of  officers  and  agents  of  the  corporation  is 
the  same  as  the  liabilit}'  of  the  agents  of  the  individual  where 
the  agents  making  the  contract  would  be  liable  to  their  prin- 
cipal, being  an  individual. 

"If  one  falsely  represents  that  he  has  an  authority  by 
which  another,  relying  pn  the  representation,  is  misled,  he 
is  liable ;  and  by  acting  as  agent  for  another  when  he  is  not, 
though  he  thinks  he  is,  he  tacitly  and  impliedly  represents 
himself  authorized,  without  knowing  the  fact  to  be  true,  it  is 
in  the  nature  of  a  false  warranty,  and  he  is  liable.  But  in 
both  cases  his  liability  is  founded  on  the  ground  of  deceit, 
and  the  remedy  is  by  action  of  tort." 

Jefts  vs.  York,  10  Cush.  (Mass.)  392;  Farmers'  &  Me- 
chanics' Bank  vs.  Colby,  64  Cal.  352;  28  Pac.  118. 

The  rule  of  the  liability  of  the  principal  for  the  acts  of 
his  agents  is  broadly  stated  by  Mr.  Justice  Story : — 


340  INDUSTRIAL     CORPORATIONS 

"A  principal  is  to  be  held  liable  to  third  persons,  in  a  civil 
suit,  for  the  frauds,  deceits,  concealments,  misrepresentations, 
negligences,  and  other  malfeasances  and  omissions  of  duty 
of  his  agent  in  the  course  of  his  employment,  although  the 
principal  did  not  authorize  or  justify  or  participate  in,  or,  in- 
deed, know  of,  such  misconduct,  or  even  if  he  forbade  the 
acts,  or  disapproved  of  them.  In  all  such  cases  the  rule  applies, 
respondent  superior,  and  is  founded  upon  public  policy  and  con- 
venience ;  for  in  no  other  way  could  there  be  any  safety  to 
third  persons  in  their  dealing,  either  directly  with  the  prin- 
cipal, or  indirectly  with  him,  through  the  instrumentality  of 
agents.  In  every  such  case  the  principal  holds  out  his  agent 
as  competent  and  fit  to  be  trusted,  and  thereby,  in  effect,  he 
warrants  his  fidelity  and  good  conduct  in  all  matters  within 
the  scope  of  his  agency." 

Story,   Ag.   452;    Fifth    Ave.    Bank   of    New    York   vs. 

Forty-second  St.  &  Grand  St.  Ferry  R.  Co.,  137  N.  Y. 

231;  33  N.  E.  378;  Philadelphia  W.  &  B.  R.  Co.  vs. 

Quigley,  21    How.  207;   1    Cumming  Cas.    Priv.   Corp. 

453;  Denver  &  R.  G.  Ry.  vs.  Harris,  122  U.  S.  597;  7 

Sup.  Ct.  1286;  Salt  Lake  City  vs.  Hollister,  118  U.  S. 

256;  6  Sup.  Ct.  1055;  3  Cumming  Cas.  Priv.  Corp.  107; 

State  vs.  Morris  &  E.  R.  Co.  23  N.  J.  Law  369. 

§  234.     Liability  of  Officers  and  Agents  to  Third  Persons  for 
Frauds. 

The  question  of  the  liability  of  officers  of  the  corporation 
and  third  persons  for  torts  and  other  wrongs  committed  in 
their  individual  capacity  is  a  matter  outside  of  whether  the 
corporation  itself  is  also  liable  for  the  wrongful  conduct.  The 
rule  is  that  the  officers  of  the  corporation  are  themselves  liable 
for  all  acts  of  fraud  as  individuals.  This  liability  they  can 
not  shield  behind  the  fact  that  they  are  an  agent  of  the  cor- 
poration. They  are  themselves  liable  upon  the  sole  ground 
that  they  are  guillty  of  a  tort  or  wrongful  act,  and  their  lia- 
bility does  not  rest  upon  any  matter  of  contract.  It  rests 
solely  upon  the  fact  of  the  tort  committed. 

Salmon    vs.    Richardson,    30    Conn.    360 ;    Cowley    vs. 

Smyth,  46  N.  J.  Law  380;  Clark  vs.  Edgar,  84  Mo.  106; 

Schley  vs.  Dixon,  24  Ga.  273 ;  Zinn  vs.  Mendel,  9  W. 

Va.  580. 


INCORPORATION     OF     COMPANIES  341 

Where  the  boards  of  directors  or  other  officers  of  the 
corporation  issue  false  statements  concerning  its  financial 
standing-  or  of  its  property,  or  false  statements  in  a  prospectus 
whereby  persons  are  induced  to  buy  stock,  or  make  other 
contracts  with  the  corporation  to  their  injury,  this  will  render 
the  directors  liable. 

Morgan  vs.  Skiddy,  62  N.  Y.  319;  Westervelt  vs.  Dem- 

arest,  46  N.  J.  Law  37. 

These  cases  rest  upon  the  specific  fact  of  false  representa- 
tion or  deceit  by  the  directors  or  officers,  and  it  is  only  suffi- 
cient to  fix  the  liability  of  such  officers  and  agents  that  the 
false  representation  or  deceit  come  within  the  rules  of  any 
other  false  representation  or  deceit  in  law.  It  must  be  fraud- 
ulent, known  to  be  false,  or  made  in  wilful  or  reckless  dis- 
regard, whether  it  was  true  or  false. 

Wakeman  vs.  Dalley,  51  N.  Y.  27;  Arthur  vs.  Griswold, 
55  N.  Y.  400;  Cowley  vs.  Smith,  46  N.  J.  Law  380;  Cole 
vs.  Cassidy,  138  Mass.  437;  Zinn  vs.  Mendel,  9  W.  Va. 
580. 

The  action  will  fail  if  the  person  who  brings  the  action  did 
not  rely  upon  the  representations  or  did  not  sustain  any  injury 
thereby. 

Wakeman  vs.  Dalley,  51  N.  Y.  27. 

§  235.     Officers,  Compensation  of. 

It  is  the  settled  law  that  if  an  officer  or  agent  of  corpora- 
tion perform  the  duties  of  the  corporation  as  defined  by  its 
charter  or  by-laws  that  no  compensation  can  be  recovered, 
and  before  he  can  have  compensation  for  his  services,  there 
must  be  a  contract  between  him  and  the  corporation  that  he 
shall  receive  pay  for  his  services. 

Citizens'  Nat.  Bank  vs.  Elliott,  55  Iowa  104;  7  N.  AY. 

470;  American    Cent.   Ry.   Co.   vs.    Miles,  52   111.   174; 

Cheeney  vs.  Railway  Co.,  71  111.  106;  New  York  &  X. 

H.  R.  Co.  vs.  Ketchum,  27  Conn.  170. 

Such  an  officer  can  not  recover  upon  an  implied  agreement 
what  his  services  are  reasonably  worth. 
See  authorities  supra. 


342  INDUSTRIAL     CORPORATIONS 

The  rule  is  different  where  an  officer  performs  extraor- 
dinary services,  that  is  to  say,  does  work  for  the  corporation 
outside  of  his  regular  and  usual  duties,  at  their  request.  To 
illustrate,  where  an  attorney-at-law  was  a  director  of  the 'cor- 
poration, and  at  the  request  of  the  corporation  performed 
legal  services  for  the  company,  it  was  held  that  he  was  entitled 
to  the  reasonable  value  of  what  his  services  were  worth. 

Ten  Eyck  vs.  Railroad  Co.,  74  Mich.  226;  41  N.  W.  905 ; 

Cheeney  vs.  Railway  Co.,  68  111.  570;  Lafayette,  B.  & 

M.  Ry.  Co.  vs.  Cheeney,  87  111.  446. 

The  board  of  directors  alone  have  the  power  to  fix  the 
compensation  for  the  officers  of  the  corporation,  unless  such 
authority  is  otherwise  delegated  by  the  charter  or  by-laws,  or 
fixed  by  the  charter  or  by-laws.  It  must  not  be  understood 
from  these  suggestions  that  the  board  of  directors  has  an  un- 
limited authority.  Each  and  every  act  of  the  board  of  di- 
rectors must  be  in  good  faith  and  for  the  benefit  of  the  cor- 
poration. They  must  not  transcend  their  power.  They  can 
not  pay  claims  that  the  company  is  under  no  obligation  to 
pay.  They  can  not  raise  the  salary  of  officers  after  it  is  fixed, 
that  is  to  say,  they  can  not  pay  an  officer  for  his  back  services 
where  the  compensation  for  those  services  has  already  been 
fixed. 

Jones  vs.  Morrisen,  31  Minn.  140;  16  N.  W.  854. 
The  rule  above  announced  does  not  apply  to  the  mere 
agents,  servants,  or  minor  helpers  in  and  about  the  corporate 
business.  They,  in  the  absence  of  express  agreement,  have  a 
right  to  such  compensation  as  their  services  are  reasonably 
worth. 

Spence  vs.  Whitaker,  3  Port.  297;  Waller  vs.  Bank  of 
Kentucky,  31  J.  J.  Marsh.  206;  Goodwin  vs.  Union  Screw 
Co.,  34  N.  H.  378;  Bill  vs.  Darenth  Valley  R.  R.  Co.,  1 
Hurl.  &  N.  305. 

Whether  the  officers  of  the  corporation  can  fix  their  own 
salaries  depends  where  there  is  no  charter  or  by-law  regulat- 
ing the  matter,  or  on  the  question  of  the  good  faith  and  fair- 
ness of  the  transaction.  If  it  is  fair  and  free  from  fraud,  it 


INCORPORATION     OF     COMPANIES  343 

will  be  sustained,  but  if  it  is  manifestly  unfair,  it  will  be  set 
aside  at  the  election  of  the  corporation. 

Jones  vs.  Morrison,  31  Minn.  140;  16  N.  W.  854. 

It  has  been  !'*»  d  that  an  officer  may  vote  on  a  question 
or  resolution  fixing  his  salary. 

Jones  vs.  Morrison,  31  Minn.  140;  16  N.  W.  854;  Miner 
vs.  Ice  Co.,  93  Mich.  97;  53  N.  W.  218. 

§  236.     Removal  of  Officers  and  Agents. 

A  corporation  has  the  right  to  remove  any  officer  for  in- 
competency  or  where  he  violates  his  contract  where  he  has  a 
contract  for  a  fixed  term,  and  inferior  officers  or  agents  may 
be  removed  at  the  pleasure  of  the  corporation  or  those  ap- 
pointing him. 

1  Thomp.  Corp.  802,  805. 

If  there  is  a  contract  between  the  officers  and  the  cor- 
poration for  a  fixed  time,  such  an  officer  can  not  be  removed 
except  for  cause,  for  that  this  would  be  a  breach  of  the  con- 
tract on  the  part  of  the  corporation.  The  corporation,  how- 
ever, can  always  remove  an  officer  or  revoke  his  authority, 
even  though  it  may  be  liable  for  a  breach  of  its  contract. 
1  Thomp.  Corp.  805. 

If  an  officer's  tenure  of  office  is  fixed  by  the  charter,  and 
there  is  no  provision  for  removal,  the  officer  will  hold  his  term 
until  it  expires.  There  is  no  power  in  the  board  of  directors 
to  remove  him,  or  if  an  officer  is  limited  by  the  stockholders, 
they  are  higher  power  than  the  board  of  directors,  and  the 
board  of  directors  have  no  authority  to  remove  him. 
1  Thomp.  Corp.  804. 

§  237.     Privity  Between  Officers  and  Stockholders. 

The  rule  or  law  is  that  there  is  no  privity  or  relation  be- 
tween corporate  officers  and  the  stockholders.  That  relation 
exists  between  the  officers  and  the  corporation.  The  officers 
did  not  hold  any  fiduciary  relation  between  themselves  and 
the  stockholders.  The  officers  of  a  corporation  are  often 
spoken  of  as  being  trustees  for  the  stockholders.  This,  how- 


344  INDUSTRIAL     CORPORATIONS 

ever,  is  not  true.  They  are  the  mere  agents  of  the  cor- 
poration. There  is  no  privacy  or  relation  existing  between 
agents  of  a  corporation  and  its  stockholders.  As  was  said  by 
Justice  Shaw : — 

"There  is  no  legal  privacy,  relation,  or  immediate  connec- 
tion between  the  stockholders  of  shares  in  a  bank,  in  their  in- 
dividual capacity,  on  the  one  side,  and  the  directors  of  the 
bank  on  the  other.  The  directors  are  not  the  bailees,  the 
factors,  agents,  or  trustees  of  such  individual  stockholders." 

Smith  vs.  Hurd,  12  Mete.  (Mass.)  371 ;  1  Gumming  Cas. 

Priv.  Corp.  792. 

If  there  is  any  loss,  it  is  by  virtue  of  the  relation  between 
the  officers  and  the  corporation,  and  the  cause  of  action 
primarily  rests  in  the  corporation,  and  it  alone  can  sue  for 
redress,  as  it  alone  is  injured.  As  was  said  by  the  court  in  a 
Connecticut  case,  the  directors  of  a  bank, — 

"are  the  agents  of  the  bank.  The  bank  is  the  only  principal, 
and  there  is  no  such  trust  for  or  relation  to  a  stockholder  as 
has  been  claimed  by  the  plaintiff.  The  entire  duty  of  the 
directors,  growing  out  of  their  agency,  is  owed  to  the  bank, 
which,  under  the  charter,  is  the  sole  representative  of  the 
stockholders,  and  the  legal  protector  and  defender  of  their 
property." 

Allen  vs.  Curtis,  26  Conn.  456;  Smith  vs.  Hurd,  12  Mete. 

(Mass.)  371;  1   Gumming  Cas.  Priv.  Corp.  792. 

Nevertheless,  the  right  rests  primarily  in  the  corporation, 
and  if  for  any  reason  it  refuses  to  act  and  bring  an  action 
for  redress  of  wrongs,  then  the  stockholders  or  any  single 
stockholder  may  proceed  thereon  in  his  own  name. 

Dodge  vs.  Woolsey,  18  How.  331 ;  Bacon  vs.  Robertson, 
18  How.  480;  1  Cumming  Cas.  Priv.  Corp.  468;  Harden 
vs.  Newton,  14  Blatchf.  376;  Fed.  Cas.  No.  6,054;  1  Cum- 
ming Cas.  Priv.  Corp.  487 


AMENDMENT  TO  ARTICLES  OF  INCORPORATION  345 

CHAPTER    XX. 

AMENDMENT  TO  ARTICLES  OF  INCORPORATION. 

§  238.     Fundamental  Requisites  Amended. 

In  the  formation  of  a  corporation  the  conditions  precedent 
or  the  fundamental  requirements  of  the  statute  must  be  com- 
plied with  before  a  corporation  can  be  formed. 

The  amendment  of  a  corporation  refers  to  the  change  in 
some  form  of  one  or  more  of  these  fundamental  statutory 
requisites. 

Among  the  usual  fundamental  requisites  arc : — 

1.  Corporate  name. 

2.  Domicilary  office. 

3.  Increase  or  decrease  of  capital  stock. 

4.  Principal  place  of  business. 

5.  Extension  of  corporate  existence. 

6.  Purposes  of  corporation. 

7.  Number  of  directors. 

8.  Par  value  of  shares. 

To  change  any  one  or  more  of  these  conditions  precedent 
or  any  other  fundamental  statutory  requirement  as  expressed 
in  the  articles,  requires  legislative  sanction  or  the  joint  act  of 
the  State,  by  and  through  its  laws,  and  the  stockholders  or 
officers,  according  to  the  statute  of  the  State  of  formation. 

Corporations  have  no  power  to  change  their  name  without 
statutory  authority. 

C.  D.  &  Ry.  vs.  Keisel,  43  la.  39 ;  Sykes  vs.  People,  23 
N.  E.  (111.)  391 ;  Glass  Co.  vs.,  32  Ind.  376. 

Nor  increase  or  decrease  the  capital  stock  without  legisla- 
tive sanction. 

Pullman  vs.  Upton,  96  U.  S.  328;  Ins.  Co.  vs.  Kamper, 
73  Ala.  325 ;  Southerland  vs.  Alcott,  95  N.  Y.  93 ;  Cran- 
dall  vs.   Lincoln,   52   Conn.  73;    Palmer  vs.    Bank,  72 
Minn.  266;  Detroit  C.  C.  vs.  State  S.,  119  Mich.  691. 
The  stockholders  in  most  jurisdictions  have  the  power  to 
increase  capital  stock  by  statutory  amendment. 


346  INDUSTRIAL     CORPORATIONS 

Abbott  vs.  Co.,  33  Barb.  (N.  Y.)  583;  State  vs.  After- 
dol,  72  Minn.  488;  75  N.  W.  692;  C.  C.  Ry.  vs.  Allerton, 
18  Wall  (U.  S.)  233;  Gill  vs.  Boyless,  72  Mo.  424;  Al- 
lesheimer  vs.  Mnfg.  Co.,  44  Mo.  App.  172;  Clough  vs 
Co.,  55  Pac.  (Cal.)  809;  Com.  vs.  Cullen,  13  Pa.  St.  133. 

Change  of  principal  place  of  business  requires  an  amend- 
ment. 

Rennet  vs.  Co.,  39  Atl.  (N.  H.)  585;  Harris  vs. -Mc- 
Gregor, 29  Cal.  124;  Stickle  vs.  L.  C.  M.  Co.,  32  Atl.  (N. 
J.  Eq.)  708. 

The  principal  place  of  business  and  the  principal  place  of 
transacting-  business  are  not  one  and  the  same  place. 

Harris  vs.  McGregor,  supra ;  Van  Elton  vs.  Eaten,  19 
Mich.  187;  McConnell  vs.  Co.,  (Mont.)  74  Pac.  194. 

The  change  of  agent  does  not  need  the  sanction  of  statute 
unless  his  naming  is  a  "condition  precedent"  in  the  articles. 
Johnson  vs.  Mason,  L.  51  S.  W.  (Ky.)  620. 

Changing  number  of  directors  if  conditions  precedent  re- 
quire amendment. 

Matter  of  G-I  Co.,  63  N.  J.  L.  158,  357;  41  Atl.  9311; 
46  Atl.  1097. 

Changing  the  business  or  the  purpose  of  the  corporation  in 
its  entirety  can  not  be  done  by  amendment,  as  that  would  be 
a  method  of  incorporation  by  amendment  and  thus  dodge  the 
statutory  fees  for  incorporating. 

State  vs.  Taylor,  53  la.  759;  In  Re  Bottling  Co.,  Penn. 

County  Court  Rep.  593 ;  6  N.  W.  39. 

However,  even  when  fundamental  changes  are  effected  in 
the  purposes,  still  the  courts  are  favoring  such  by  amendments. 
Meredith  vs.  Co.,  59  N.  J.  Eq.  257;  44  Atl.  55. 

The  right  of  amendment  depends  upon  the  power  granted 
by  the  State  in  such  cases,  and  in  construing  the  statutes  al- 
lowing amendments,  courts  are  not  so  rigid  as  formerly. 

Colder  vs.  Bressler,  105  111.  419;  Hope  vs.  Ins.  Co.,  47 
Mo.  93;  Spriggs  vs.  Co.,  46  Md.  67;  Day  vs.  Co.,  75 
la.  694;  38  N.  W.  113;  Det  Chain  Com.  vs.  Sec.  State, 


AMENDMENT  TO  ARTICLES  OF  INCORPORATION  347 

109  Mich.  691 ;  Mercantile  Statment  Co.  vs.  Kneal,  51 
Minn.  263;  People  vs.  Green,  116  Mich.  505. 

It  has  been  shown  that  the  stockholders  are  the  proper 
authority  to  change  the  purposes  of  the  corporation,  but  can 
ihey  do  so  if  a  minority  object  and  contest  the  right? 

In  Buffalo  vs.  N.  Y.  City  Ry.  Co.  vs.  Dudley,  14  N.  Y.  342, 
where  the  majority  sought  to  change  the  name  of  the  road 
and  extend  its  lines  by  amendment,  the  court  allowed  the 
change  over  the  objection  of  a  minority  protest,  and  said: — 

"The  stock  subscription  having  been  valid  so  as  to  give 
a  right  of  action  in  case  of  non-payment  to  the  corporation, 
did  the  alteration  of  the  charter  and  the  extension  of  the  road 
subsequently  absolve  the  defendant  from  his  liability  upon 
such  subscription  ?  The  right  to  alter  was  reserved  in  the 
charter,  and  the  subscription  must  be  taken  to  have  been 
made  subject  to  having  such  additional  powers  conferred  as 
the  Legislature  might  deem  essential  and  expedient.  The 
change  is  not  fundamental.  Tihe  new  powers  conferred  are 
identical  in  kind  with  those  originally  given.  They  are  en- 
larged merely,  the  general  objects  and  purposes  of  the  corpo- 
ration remaining  still  the  same.  It  may  be  admitted  that 
under  this  reserved  power  to  alter  and  repeal,  the  Legislature 
would  have  no  right  to  change  the  fundamental  character  of 
the  corporation  and  convert  it  into  a  different  legal  being, 
for  instance  a  banking  corporation,  without  absolving  those 
who  did  not  choose  to  be  bound.  But  this  they  have  not 
attempted  to  do.  The  additional  powers  are  of  the  same 
character  and  have  been  regularly  acquired  from  a  legitimate 
source  of  power,  and  if  they  had  been  fairly  exercised,  the 
defendant,  although  the  change  may  have  operated  to  his 
pecuniary  disadvantage,  is  still  bound  by  his  undertaking. 
The  whole  matter  is  manifestly  a  question  of  power;  and  if 
the  power  was  legitimately  acquired  and  has  been  exercised 
without  fraud,  the  rights  of  the  parties  are  in  no  respect 
changed  as  between  themselves  whether  the  alteration  is 
beneficial  or  injurious  to  the  defendant's  interest.  Whether 
he  has  made  or  lost  by  the  change  in  no  respect  affects  the 
question  of  authority  in  the  plaintiff." 

The  right  of  the  courts  interfering  in  favor  of  the  minority 
stockholders  against  the  will  of  the  majority  in  corporate 
matters  is  stated  by  the  Supreme  Court  of  New  York  thus : — 


348  INDUSTRIAL     CORPORATIONS 

"The  courts  would  not  be  justified  in  interfering  even  in 
doubtful  cases,  where  the  action  of  the  majority  might  be 
susceptible  to  different  constructions.  (To  warrant  the  in- 
terposition of  the  court  in  favor  of  the  minority  shareholders 
in  a  corporation  or  a  joint  stock  association,  as  against  the 
contemplated  action  of  the  majority  where  such  action  is 
within  the  corporate  power,  a  case  must  be  made  out  which 
plainly  shows  that  such  action  is  so  far  opposed  to  the  true 
interests  of  the  corporation  itself  as  to  lead  to  the  clear  in- 
ference that  no  one  thus  acting  could  have  been  influenced 
by  any  honest  desire  to  secure  such  interests,  but  that  he 
must  have  acted  with  an  intent  to  subserve  some  outside 
purpose,  regardless  of  the  consequences  to  the  company  and 
in  a  manner  inconsistent  with  its  interests.  Otherwise  the 
court  might  be  called  upon  to  balance  probabilities  of  profit- 
able results  to  arise  from  the  carrying  out  of  the  one  or  the 
other  of  the  different  plans  proposed  by  or  on  behalf  of  the 
different  shareholders  in  a  corporation,  and  to  decree  the 
adoption  of  that  line  of  policy  which  seemed  to  it  to  promise 
the  best  results,  or  at  least  to  enjoin  the  carrying  out  of  the 
opposite  policy.  This  is  no  business  of  any  court  to  follow.)" 
•  Gamble  vs.  Co.,  123  N.  Y.  91 ;  25  N.  E.  201. 

In  defining  the  right  of  stockholders,  the  Supreme  Court 
of  Massachusetts  said  : — 

"A  holder  of  shares  in  an  incorporated  body,  so  far  as  his 
individual  rights  and  interests  may  be  involved  in  the  doings 
of  the  corporation,  acting  within  the  legitimate  sphere  of  its 
corporate  power,  has  no  other  legal  control  over  them  than 
that  which  he  can  exercise  by  his  single  vote  in  the  meetings 
of  the  company.  To  this  extent  he  has  parted  with  his  per- 
sonal right  or  privilege  to  regulate  the  disposition  of  that 
portion  of  his  property  which  he  has  invested  in  the  capital 
stock  of  the  corporation,  and  surrendered  it  to  the  will  of  a 
majority  of  his  fellow  corporators.  The  jus  disponendi  is  vested 
in  them  so  long  as  they  keep  within  the  line  of  the  general 
purpose  and  object  for  which  the  corporation  was  established, 
although  their  actions  may  be  against  the  will  of  a  minority 
however  large.  It  can  not,  therefore,  be  justly  said  that  the 
contract,  express  or  implied,  between  the  corporation  and  the 
stockholders  is  infringed  or  impaired  by  any  act  or  proceeding 
of  the  former  which  is  authorized  by  a  majority  and  which 
comes  within  the  terms  of  the  original  statute  creating  and 
establishing  their  franchise,  and  conferring  on  them  capacity 


AMENDMENT  TO  ARTICLES  OF  INCORPORATION  349 

to  exercise  control  over  the  rights  and  property  of  their  mem- 
bers. On  the  contrary,  the  fair  and  reasonable  implication 
resulting  from  the  legal  relation  of  the  stockholders  and  the 
corporation  is  that  the  majority  may  do  any  act  either  coming 
within  the  scope  of  the  corporate  authority  or  which  is  con- 
sistent with  the  terms  and  conditions  of  the  original  charter, 
without  and  even  against  the  consent  of  an  individual  mem- 
ber." 

Dupree  vs.  Ry.  5  Allen  230. 

Speaking  of  a  stockholder's  right  respecting  an  amend- 
ment, the  same  court  further  said: — 

"The  real  contract  into  which  the  stockholder  enters  with 
the  corporation  is  that  he  agrees  to  become  a  member  of  an 
artificial  body  which  is  created  and  has  its  existence  by  virtue 
of  a  contract  with  the  Legislature,  which  may  be  amended 
or  changed  with  the  consent  of  the  company,  ascertained  or 
declared  in  the  mode  pointed  out  by  law.  Having,  by  virtue 
of  the  relation  which  subsists  between  himself  and  the  cor- 
poration as  a  holder  of  shares,  assented  to  the  terms  of  the 
original  act  of  incorporation,  he  can  not  be  heard  to  say  that 
he  will  not  be  bound  by  vote  of  the  majority  of  the  stock- 
holders accepting  an  amendment  or  alteration  of  the  charter 
made  in  pursuance  of  an  express  authority  reserved  to  the 
Legislature,  and  which  by  such  acceptance  has  become  bind- 
ing on  the  corporation." 

The  statute  having  provided  a  right  of  amendment  at  the 
time  the  charter  was  procured,  it  enters  into  the  contract  as 
much  as  if  it  was  written  .into  it,  and  binds  every  stockholder 
when  the  right  is  promulgated  by  the  proper  number  of  stock- 
holders. 

Extension  of  corporate  existence  when  the  statute  so  pro- 
vides must  pay  an  organization  tax,  even  though  it  be  had 
by  an  amendment. 

National  Lead  Co.  vs.  Dickinson,  57  Atl.  (N.  J.)   138. 
Change  of  directors. 

Under  the  various  statutes  the  form  of  amendment  varies 
according  to  the  terms  of  the  statutes  under  which  the  amend- 
ment is  sought  to  be  had  or  accomplished. 

Under  the  laws  of  Arizona,  amendment  is  a  very  simple 


350  INDUSTRIAL  CORPORATIONS 

proceeding,  and  may  be  done  at  any  time  by  a  majority  of  the 
stock. 

§  239.     Arizona  Form. 

AMENDMENT    OF    THE    ARTICLES    OF    INCORPORATION    OF    THE 
NATIONAL  COAL  COMPANY. 

Know  all  men  by  these  presents : 

That  at  a  regular  (or  special)  meeting  of  the  stockholders 
of  the  National  Coal  Company,  held  at  the  office  of  said  Com- 
pany on  the  10th  day  of  October,  A.  D.  1905,  the  following 
amendment  was  adopted  by  an  affirmative  vote  of  the  ma- 
jority of  the  stockholders  of  said  Company. 

Resolved,  That  Articles  I  and  VI  of  the  Articles  of  In- 
corporation of  the  National  Coal  Company  be  amended  so  as 
to  read  as  follows : — 

Article  I. — The  name  of  this  corporation  shall  be  National 
Coal  (Iron  and  Investment)  Company. 

Article  VI. — The  highest  amount  of  liability  to  which  this 
corporation  shall  subject  itself  at  any  one  time  shall  not  ex- 
ceed one  hundred  thousand  dollars  ($100,000). 

In  witness  whereof,  the  President  and  Secretary  of  said 
Company  have  hereunto  set  our  hands  and  seals  this  10th 
day  of  October,  A.  D.  1905. 

William  Stone,  President, 
Attest:  John  Jones,  Secretary. 

State  of  Illinois          ) 

County  of  Cook    j 

Before  me,  James  Mahoney  (a  Notary  Public  in  and  for 
said  County  and  State),  on  this  day  personally  appeared 
William  Stone  and  John  Jones,  known  to  me  to  be  the  Presi- 
dent and  Secretary  of  the  National  Coal  Company,  and  known 
to  me  to  be  the  persons  whose  names  are  subscribed  to  the 
foregoing  instrument,  and  acknowledged  to  me  that  they  exe- 
cuted the  same  for  the  purposes  and  considerations  therein 
expressed. 

Given  under  my  hand  and  seal  this  10th  day  of  October, 
A.  D.  1905.  James  Mahoney, 

(SEAL)  Notary  Public. 

My  commission  expires  March   19,  1907. 

(Always  be  sure  to  have  the  Notary  Public  show  when 
his  commission  expires.) 

Par.  770,  Amdt.  by  Session  Acts  1903,  p.  140. 


AMENDMENT  TO  ARTICLES  OF  INCORPORATION  351 

i 

The  law  requires  an  amendment  to  be  acknowledged,  re- 
corded, and  published  precisely  as  original  articles  are  re- 
quired to  be,  but  no  more. 

Par.  770,  Amdt.  by  Session  Acts  1903,  p.  140. 

The  Arizona  procedure  covers  probably  the  procedure  of 
many  States,  where  the  stockholders  make  the  amendment,  but 
others  require  an  amendment  to  be  made  by  the  board  of 
directors  and  ratified  by  all  or  part  of  the  stockholders.  The 
various  statutes  differ  in  respect  of  detail  in  many  instances. 

§  240.     Form  Where  Board  of  Directors  Make  Amendment. 

CERTIFIED   RESOLUTION    UPON   PROPOSITION   TO   AMEND. 

Be  it  remembered  that  at  a  regular  meeting  of  the  Board 
of  Directors  of  the  Leap  to  Light  Mining  Company,  held 
on  the  ....  day  of  ....  1905,  at  the  office  of  the  Company, 
....  Street,  city  of  . . .  .,  county  of  .  . .  .,  State  of,  .  . .  .,  the 
following  resolution  was  introduced  and  was  unanimously 
adopted  as  follows: — 

Whereas,  It  is  the  wish  of  the  stockholders  of  this  cor- 
poration that  the  Articles  of  Incorporation  be  amended  so 
as  to  provide  for  seven  directors  instead  of  five,  as  recited  in 
the  original  Articles  of  Incorporation.  Therefore  be  it — 

Resolved,  That  the  President  and  Secretary  of  this  cor- 
poration be  and  they  are  hereby  authorized,  empowered,  and 
directed  to  do  all  things  necessary  and  proper  to  amend  the 
Articles  of  Incorporation  of  this  Company  to  the  end  that  its 
board  of  directors  shall  thereafter  consist  of  seven  members. 

Resolved,  That  the  following  shall  be  added  to  and  here- 
after constitute  a  part  of  paragraph  numbered 

That  hereafter  the  number  of  directors  or  trustees  of  this 
corporation  shall  be  seven  instead  of  five,  and  the  names  and 
residences  of  the  two  additional  directors,  in  addition  to  the 
five  original  provided  for  in  the  original  Articles  of  Incor- 
poration, and  who  are  appointed  to  serve  for  the  unexpired 
portion  of  the  current  corporate  year,  are  as  follows : — 
Names.  Residences. 


State  of 

County  of '  s 

This  is  to  certify  that  the  foregoing  is  a  true  and  correct 


352  INDUSTRIAL     CORPORATIONS 

copy  of  the  resolution  passed  by  the  board  of  directors  of  the 
....  Company  on  the  ....  day  of  ....  1905,  that  the  under- 
signed is  President  and  Secretary  of  the  said  corporation, 
respectively. 

(Signed)      President. 

Secretary. 

(Corporate  Seal) 

AMENDMENT  APPROVED. 

We,  the  undersigned  stockholders  of  the  ....  Company, 
who  have  subscribed  for  and  own  more  than  two  thirds  of  the 
capital  stock  thereof,  hereby  and  by  these  presents  do  assent 
to,  confirm,  and  ratify  the  amendments  of  the  Articles  of  In- 
corporation made  by  its  board  of  directors  on  the  ....  day 
of  ....,  1905. 

Names  of  stockholders.  Number  of  shares  owned. 


State  of  j 

County  of  )  ss> 

This  is  to  certify  that  the  above  and  foregoing  assent  of 
stockholders  was  by  them  duly  made,  signed,  and  filed  in  the 
office  of  the  company  on  this  ....  day  of  .  . .  .,  1905,  and  the 
said  parties  are  the  owners  and  holders  of  more  than  two 
thirds  of  the  capital  stock  of  the  said  corporation,  as  appears 
by  the  books  now  in  the  custody  of  the  undersigned. 

(Signed)      Secretary. 

(Corporate  Seal) 

The  right  of  amendment  has  been  much  discussed  by 
Legislatures  and  laws  passed,  and  by  the  courts  and  decisions 
rendered.  It  was  early  held  by  the  Supreme  Court  of  the 
United  States  that  the  Legislature  had  no  power  to  amend, 
alter,  or  repeal  a  corporate  charter  unless  the  power  to  do  so 
was  reserved  in  the  act  of  incorporation. 

The  reason  for  this  ruling  is  that  a  charter  or  articles  are 
held  to  be  a  legislative  contract  within  the  protection  of  the 
federal  constitution  (sec.  10). 

Dartmouth  College  vs.  Woodward,  4  Wheat.  518. 

In  a  separate  concurring  opinion,  Story,  J.,  said  that — 
"when  the  Legislature  was  enacting  a  charter  for  a  corpora- 


AMENDMENT  TO  ARTICLES  OF  INCORPORATION  353 

tion,  a  provision  in  the  statute  reserving  to  the  Legislature  the 
right  to  amend  or  repeal,  it  must  be  held  to  be  a  part  of  the 
contract  itself,  and  the  subsequent  exercise  of  the  right  would 
be  in  accordance  with  the  contract  and  could  not  therefore 
impair  its  obligation." 

Greenwood  vs.  Co.,  105  U.  S.  13. 

Generally  the  courts  will  presume  the  Legislature  acted 
properly  where  it  has  altered,  amended,  or  repealed  a  charter 
or  articles  if  the  power  to  do  so  was  reserved  in  the  laws  creat- 
ing it. 

Greenwood  vs.  Co.,  supra;  Wagner  F.  I.  vs.  Pa.,  132 

Pa.  St.  612. 

The  court  will  examine  into  the  whole  matter,  however, 
and  decide  whether  such  legislative  enactment  was  in  viola- 
tion of  settled  principles  of  justice. 

Lathrop  et  al  vs.  Stedman,  Fed.  Cas.  8519. 

The  Legislature  can  not  by  altering,  amending,  or  repeal- 
ing a  charter  or  article  divest  vested  rights  or  destroy  the 
very  purpose  of  the  grant  or  impair  it. 
N.  J.  Ry.  vs.  Town,  151  U.  S.  556. 

It  would  indeed  be  a  dangerous  power  to  even  lodge  in  a 
Legislature  the  unlimited  right  to  destroy  corporate  existence 
after  it  had  once  granted  it  the  corporate  franchise.  Hence 
it  is  not  an  arbitrary  authority,  due  and  just  respect  must  be 
given  to  the  contracts  of  the  State  evidenced  by  and  through 
its  legislative  enactments.  Regard  must  be  had  for  the  just 
rights  of  others,  the  right  of  contract  must  be  held  inviolate. 

The  United  States  Court  has  laid  down  the  limitation  on 
the  power  of  the  Legislature  in  such  cases,  as  follows : — 

"That  the  power  to  alter  or  amend  a  charter  even  when 
reserved  has  a  limit  no  one  can  doubt.  All  agree  that  it  can 
not  be  used  to  take  away  the  property  already  acquired  under 
the  operation  of  the  charter  or  to  deprive  the  corporation 
of  the  fruits  actually  reduced  to  possession  of  contracts  law- 
fully made.  It  may  safely  be  affirmed  that  the  reserve  power 
may  be  exercised  to  almost  any  extent  to  carry  into  effect  the 
original  purposes  of  the  grant  or  to  secure  the  due  adminis- 
tration of  its  affairs  so  as  to  protect  the  rights  of  stockholders 

24 


354  INDUSTRIAL     CORPORATIONS 

and  creditors,  and  for  the  proper  distribution  of  ils  assets. 
Also  to  protect  the  rights  of  the  public  and  of  the  incorpo- 
rators  or  to  promote  the  due  administration  of  the  affairs  of 
the  corporation.  The  alteration  must,  however,  be  reasonable. 
They  .must  be  made  in  good  faith,  and  be  consistent  with  the 
object  and  scope  of  the  act  of  incorporation.  Sheer  oppression 
and  wrong  can  not  be  inflicted  under  the  guise  of  alteration 
or  amendment." 

U.  P.  Ry.  Co.  vs.  U.  S.  99  U.  S.  700. 


EXTENSION   OF   CORPORATE  LIFE  355 

CHAPTER    XXI. 

EXTENSION   OF  CORPORATE  LIFE. 

§  241.     Corporate  Existence  Duration. 

The  extension  of  the  duration  of  corporate  existence  de- 
pends on  the  laws  of  the  State  where  the  incorporation  is  pro- 
cured. Some  States  fix  a  time  when  corporate  existence  ex- 
pires. In  all  such  cases  if  there  is  no  statute  allowing  the 
extension  of  the  corporate  life  by. the  stockholders  or  other- 
wise, then,  of  course,  corporate  existence  lapses,  as  no  inherent 
power  exists  in  the  stockholders  to  extend  the  time.  It  expires 
ipso  facto  by  expiration  of  the  contract  or  by  limitation  of  law. 

One  case  holds  that  corporate  existence  may  be  extended 
by  amendment  where  the  right  of  amendment  is  unlimited. 
People  vs.  Green,  116  Mich.  505;  74  N.  W.  714. 

It  appears  to  be  considered  in  the  nature  of  the  forming  a 
new  corporation,  as  one  State  at  least  compels  the  payment 
of  an  organization  tax  when  corporate  existence  is  extended 
by  amendment. 

National  Lead  Co.  vs.  Dickinson,  57  Atl.  (N.  J.)  138. 
Some  of  the  States  and  Territories,  like  New  Mexico,  give 
the  option  of  perpetual  or  limited  duration  as  expressed  in  the 
Articles  of  Incorporation,  then  the  right  of  amendment  reaches 
that  point  and  the  duration  may  be  extended  to  suit  the  in- 
corporators  if  they  failed  to  make  it  perpetual  in  the  first 
instance. 

Sees.  7  and  29,  Laws  of  New  Mexico,  1905. 

Lender  the  laws  of  Arizona,  the  duration  of  corporate  ex- 
istence may  be  extended  by  the  stockholders  indefinitely  by 
majority  vote  of  the  stock  at  a  meeting  held  for  that  purpose. 

In  order  to  extend  corporate  existence  where  this  statutory 
method  is  in  force  it  is  necessary  to  call  a  stockholders'  meet- 
ing and  hold  the  meeting  for  the  purpose  of  voting  on  whether 


356  INDUSTRIAL     CORPORATIONS 

or  not  the  corporate  existence  would  be  extended.     The  meet- 
ing may  be  a  general  or  special  stockholders'  meeting. 
Such  a  meeting  to  be  legal  would  require,  to  wit: — 

1.  Must  be  a  stockholders'  meeting. 

2.  Duly  called  by  notice. 

3.  Notice   must   contain   the   time,   place,   and   must  state 
particularly  that  the  meeting  is  called  for  the  purpose  of  voting 
to  extend  the  life  of  the  corporation,  to  renew  the  Articles  of 
Incorporation. 

4.  A  majority  rote  of  the  stock  is  sufficient  to  sanction 
corporate  renewal. 

Renewal  is  had  by  an  amendment  like  the  amendment  of 
any  other  feature  of  the  charter  or  articles. 

R.  S.,  par.  770,  sec.  10,  Session  Acts  1903,  p.  140. 

The  notice  is  no  different  from  other  notices,  except  it  must 
state  the  precise  purpose  for  which  the  meeting  is  called ;  i.  e., 
to  renew  the  Articles  of  Incorporation. 

Perpetual  existence  is  secured  by  renewals  extending  the 
time  from  time  to  time,  indefinitely  if  a  majority  of  stock  so 
desire,  and  this  amendment  would  be  no  different  in  character 
from  any  other  amendment. 

Perpetual  existence  is  not  a  discussion  with  the  incorpo- 
rators  in  the  first  instance,  owing  to  sec.  11,  par.  771,  R.  S. 
Ariz.,  which  fixes  the  time  for  which  a  corporation  may  be 
formed  to  endure  at  twenty-five  years,  but  the  right  to  amend 
this  feature  of  the  charter  is  given  unlimited  by  Session  Act 
1903,  p.  140,  par.  770,  sec.  10,  as  amended,  which  right  of 
amendment  would  exist  at  each  expiration  of  life  named  in 
the  articles.  The  discretion  of  extension  is  given  by  amend- 
ment fully. 

Where  corporate  life  has  been  fixed  at  a  given  time  and 
the  right  of  amendment  unlimited  generally,  even  though  the 
right  to  amend  does  not  refer  to  duration,  still  the  amendment 
can  be  used  to  extend  the  time. 
People  vs.  Green,  supra. 


VOTING    TRUST  357 

CHAPTER   XXII. 
VOTING  TRUST. 

§  242.     Voting  Trust. 

Voting  trust,  so-called,  is  in  fact  no  more  than  a  convenient 
means  of  avoiding  giving  proxies  at  stated  intervals  and  giv- 
ing a  proxy  for  a  long  period  of  time,  covering  a  series  of  years 
stated  in  the  proxy. 

In  short,  it  is  nothing  more  than  appointing  an  agent  to 
transact  business  for  a  longer  or  shorter  period. 

It  is  a  plan  by  and  through  which  those  having  large  hold- 
ings can  delegate  the  management  of  their  property  and  avoid 
giving  it  their  personal  attention  or  supervision,  or  it  enables 
the  leading  characters  in  the  enterprise  to  shape  and  mold  the 
policy  of  the  business. 

This  method  of  controlling  the  management  of  corporate 
property  by  voting  trust  is  sometimes  called  "pooling  of  stock." 

Whether  a  voting  trust  can  be  made  by  stockholders  may 
depend  on  whether  the  articles  of  agreement  provide  for  a 
voting  trust.  Where  the  articles  specially  provide  therefor, 
such  voting  trust  has  been  sustained.  If  the  voting  trust  was 
provided  for  in  the  articles,  certainly  then  those  who  took 
stock  in  the  corporation  could  not  object,  as  that  would  be  a 
part  of  their  contract. 

White  vs.  Co.,  52  N.  J.  Eq.  178;  28  Atl.  75. 

A  voting  trust  is  a  contract  between  the  stockholders  or 
part  of  them,  and  unless  some  national  policy  is  infringed  or 
fraud  occurs,  why  should  such  a  contract  be  obnoxious? 

No  reason  is  perceived  why  such  contracts  should  not  be 
delt  with  upon  the  same  grounds  as  any  other  contract. 

The  courts  have  decided  both  ways  on  voting  trusts,  that 
they  were  legal  and  illegal.  Statutes  have  been  passed  against 
voting  trusts,  and  again  in  turn  repealed,  all  of  which  show 


358  INDUSTRIAL     CORPORATIONS 

the  lack  of  understanding,  the  fact  that  a  voting  trust  was  like 
any  other  contract  and  must  be  interpreted  on  the  same  foot- 
ing that  where  there  is  no  fraud  people  can  make  any  contract 
to  advance  their  interests. 

Mr.  Cook,  an  able  writer  on  corporation  law,  reviews  the 
authorities  and  reaches  the  conclusion — 

"that  a  deposit  of  certificates  of  stock  with  trustees  for  a 
specified  period  of  time,  either  with  or  without  a  transfer  of 
the  same  to  the  trustees,  is  legal,  and  is  not  in  violation  of  the 
usual  statute  against  restraints  on  the  alienation  of  personal 
property,  and  is  not  opposed  to  public  policy,  as  a  restraint 
upon  trade,  and  is  not  an  implied  fraud  upon  stockholders 
who  are  not  allowed  to  participate,  and  is  not  an  illegal 
separation  of  the  voting  power  from  the  ownership  of  the 
stock,  provided  always  that  no  actual  fraud  is  involved  in  the 
transaction.  In  other  words,  such  a  pooling  of  stock  is  not 
illegal  in  itself,  but,  like  all  contracts,  may  be  illegal  if  actual 
fraud  is  involved." 

Just  precisely  how  the  rule  here  stated  could  be  otherwise 
is  difficult  to  see.  Stockholders'  rights  are  certainly  on  the 
same  basis.  The  right  of  contract  is  alike.  The  right  to  con- 
trol private  property  or  one's  own  must  surely  be  in  the 
owner,  and  so  long  as  he  does  not  infringe  the  just  rights 
of  others,  where  is  the  wrong  or  injury?  If  there  is  no  wrong 
or  injury,  where  is  the  complaint  going  to  take  root?  Most 
certainly  people  may  make  contracts  about  their  property  with- 
out legislative  sanction  or  judicial  leave,  and  still  be  right. 
It  is  an  inalienable  right. 
§  243.  Voting  Trusts  Have  Been  Sustained  By: — 

Brightman   vs.   Bates,   175   Mass.   105;   55   N.   E.  809; 

Brown  vs.  Steamship  Co.,  5  Blatchf.  525 ;  Fed.  Cas.  No. 

2,025 ;  Havemayer  vs.  Havemeyer,  43  N.  Y.  Super.  Ct. 

506,  affirmed  86  N.  Y.  618;  Williams  vs.  Montgomery, 

148  N.  Y.  519;  43  N.  E.  57;  Hey  vs.  Dolphin,  92  Hun. 

230;  36  N.  Y.  Supp.  627;  Chapman  vs.  Bates,  61  N.  J. 

Eq.  658;  47  Atl.  638;  88  Am.  St.  Rep.  459;  Mobile  &  O. 

R.  Co.  vs.  Nicholas,  98  Ala.  92 ;  12  South  723  ;  Ziegler  vs. 

Railroad  Co.,  C.  C.  69  Fed.  176;  Smith  vs.  Railroad  Co., 

115  Cal.  584;  47  Pac.  582;  35  L.  R.  A.  309;  56  Am.  St. 

Rep.  119. 


VOTING    TRUST  359 

§  244.     Voting  Trusts  Have  Been  Condemned. 

Starbuck  vs.  Co.,  60  Conn.  576;  24  Atl.  32;  Fisher  vs. 
Bush,  35  Hun.  (N.  Y.)  641 ;  Woodruff  vs.  Railroad  Co., 
C.  C.  30  Fed.  91 ;  Cone  vs.  Russell,  48  N.  J.  Eq.  208 ; 
21  Atl.  847;  White  vs.  Tire  Co.,  52  N.  J.  Eq.  178;  28 
Atl.  75  ;  Clowes  vs.  Miller,  60  N.  J.  Eq.  179 ;  47  Atl.  345  ; 
Krissel  vs.  Distilling  Co.,  61  N.  J.  Eq.  5 ;  47  Atl.  471 : 
Warren  et  al  vs.  Pirn  N.  J.  Ch.,  55  Atl.  66 ;  Vanderbilt 
vs.  Bennett,  6  Pa.  Co.  Ct.  R.  193;  2  Ry  &  Corp.  Law  J. 
409;  Harvy  vs.  Improvement  Co.,  N.  C.  2  S.  E.  489; 
32  L.  R.  A.  265 ;  54  Am.  St.  Rep.  749 ;  Clark  vs.  Bank- 
ing Co.,  C.  C.  50  Fed.  338;  15  L.  R.  A.  683;  Moses  vs. 
Scott,  84  Ala.  608;  4  South  742;  Hafer  vs.  Railroad  Co., 
14  Wkly.  Law  Bull.  68;  State  vs.  Oil  Co.,  49  Ohio  St. 
147;  30  N.  E.  279;  15  L.  R.  A.  145  ;  34  Am.  St.  Rep.  541 ; 
Ohio  &  M.  Ry.  Co.  vs.  State,  49  Ohio  St.  668 ;  32  N.  E. 
933 ;  Gould  vs.  Head,  C.  C.  38  Fed.  886. 

The  latter  decisions  rest  on  various  grounds  of  invasions 
of  rights  or  other  wrongs.  When  it  is  considered  that  human 
action  in  organized  society  is  in  some  form  either  immediate 
or  remote  a  character  of  oppression,  or  invasion  on  some  one's 
rights,  or  that  whatever  is  done  in  any  direction  in  special  in- 
stances work  a  hardship  or  result  in  injury  in  individual  cases. 
Then  we  are  prepared  to  understand  the  voting  trust  may,  and 
possibly  does,  work  a  hardship  in  special  or  individual  cases, 
yet  that  in  no  way  argues  that  the  system  is  wrong  or  those 
contracting  in  that  way  are  intentionally  guilty  of  fraud. 

§  245.     Voting  Trust  Explained. 

The  way  a  voting  trust  is  generally  accomplished  is  for 
the  stockholders,  or  for  some  controlling  portion  of  them,  to 
place  their  stock  in  the  hand  of  some  one  or  more  as  trustees, 
or  the  stock  may  be  transferred  to  the  party,  and  in  turn  this 
party  may  have  such  stock  transferred  on  the  books  of  the 
company  into  his  name  as  trustee,  and  the  certificates  will 
so  show  on  their  face;  the  authority  of  this  last  transfer  will 
be  a  pooling  agreement.  Therein  is  where  the  idea  of  a  pool- 
ing contract  gets  hold,  or  is  associated. 

The   trustees   then    issue    a    certificate    showing   that    the 


360  INDUSTRIAL     CORPORATIONS 

holder  of  such  certificate  is  entitled  to  share  in  the  profits 
according  to  his  interest  as  shown  by  the  stock  he  deposited. 

That  upon  a  declaration  of  dividends  by  the  trustee,  or 
upon  receipt  of  dividends  from  the  trust  stock,  the  trust  cer- 
tificates will  receive  their  pro  rata  of  such  dividend,  less  the 
expenses  of  the  pool  or  the  voting  trust. 

The  voting  power  of  this  trustee  stock  is  in  the  trustee 
and  is  locked  up  with  him  during  the  life  of  the  contract  or 
voting  trust. 

The  trust  certificates  themselves  are  assignable,  and  may 
be  transferred  by  the  original  owners  to  whomsoever  they 
desire. 

The  business  can  be  carried  on  by  agents  entirely,  and 
the  owners  will  receive  their  dividends  at  the  proper  time  or 
times. 

It  is  the  better  plan  to  have  the  trustee  transfer  the  de- 
posited stock  to  his  name  as  trustee,  and  let  the  certificate 
so  show  so  that  all  those  who  should  be  disposed  to  deal  in 
that  stock  would  have  notice  that  the  stock  was  held  in  trust. 

Viewing  the  "pool  agreement"  from  a  business  standpoint, 
they  are  the  offspring  of  the  fierce  struggle  in  "free  competi- 
tion," which  results  in  injury,  bankruptcy,  receivers,  destruc- 
tion of  business  wherever  "free  competition"  is  carried  to  its 
logical  result. 

"Free  competition"  is  a  misnomer.  It  should  be  free 
destruction.  It  is  a  wrong  principle,  because  its  result  ends  in 
bankruptcy,  or  failure,  or  great  loss  in  some  form.  It  is  wrong 
in  practice  because  it  opens  the  door  for  the  strong  to  strangle 
out  the  weaker  and  promotes  the  doctrine  of  survival  of  the 
fittest,  and  seems  to  impair  the  doctrine  of  equal  rights.  It 
enables  the  rich  to  grow  richer  by  the  application  of  the 
"free  competition"  doctrine  to  conquer  the  entire  field  for 
themselves.  It  enables  a  strong  concern  to  cut  prices  until 
a  weaker  competitor  surrenders  or  is  destroyed,  in  turn  only 
to  raise  prices  and  recoup  the  expense  of  the  conflict  with  as 
much  more  as  the  traffic  will  bear,  so  that  those  who  reap  the 


VOTING    TRUST  361 

reward  of  the  temporary  battle  pay  the  price  of  the  conflict 
many  fold  in  the  end. 

Competitors  of  equal  strength  pool  to  save  the  loss  of 
"free  competition." 

The  principle  of  "free  competition"  is  certainly  wrong;  it 
reasons  into  an  absurdity ;  it  results  in  destruction.  It  makes 
possible  the  very  results  it  pretends  to  obviate.  It  compels 
those  who  engage  in  it,  in  order  to  survive,  to  form  a  trust 
in  self  defense.  It  is  the  father  of  trusts  and  combines,  and  is 
their  most  deadly  weapon.  It  is  the  keenest  two-edged  dagger, 
dealing  death  to  its  weaker  competitor,  only  in  turn  to  shave 
the  beneficiaries  of  the  conflict  of  their  profit  with  such  other 
tribute  as  the  vultures  of  greed  see  fit  to  lay. 

The  remedy,  if  remedy  there  is,  must  lay  in  the  regulation 
of  "free  competition,"  and  not  in  the  regulation  of  its  results. 
Take  from  the  trust  free  competition  or  regulate  its  power 
under  free  competition,  and  its  antlers  are  gone.  Its  means  of 
destruction  or  oppression  are  gone. 

The  voting  trust  possess  many  features  of  conducting  a 
corporation  as  a  close  corporation. 

The  following  form  may  be  sufficiently  complete  for  practi- 
cal purposes  or  serve  as  a  frame  work  for  a  more  extended  or 
detail  contract. 

§  246.     Voting  Trust  Contract. 

Know  all  men  by  these  presents :  That  the  parties  to  this 
contract,  for  the  purpose  of  securing  a  prudent  management 
of  the  company  and  avoid  a  speculative  control  thereof,  and  to 
secure  the  best  interests  of  the  entire  stockholders  and  for 
their  special  benefit,  and  to  carry  out  the  understanding  of 
those  who  have  purchased  the  stock,  or  some  of  it,  that  a 
voting  trust  should  be  formed,  have  agreed  as  follows,  to  wit : 
That  in  consideration  of  the  premises  and  the  benefits  derived 
from  this  agreement  and  other  good  and  valuable  considera- 
tions from  and  between  the  respective  parties  moving  the  re- 
ceipt whereof  is  hereby  acknowledged,  the  parties  hereto 
stipulate ;  which  shall  not  take  effect,  however,  until  a  ma- 
jority of  the  shares  of  the  capital  stock  of  said  company  shall 


362  INDUSTRIAL     CORPORATIONS 

have  signed  and  delivered  their  shares  of  stock  or  otherwise 
ratified  this  agreement  as  hereinafter  set  forth. 
Witnesseth, 

1.  The   subscribers  or  stockholders   agree   to   assign    and 
transfer  on  the  books  of  the  company,  unto  the  trustees  and 
their  successors  in  the  administration  of  this  trust,  the  number 
of  shares  of  stock  owned  or  held  by  them  in  said  company, 
set   opposite    their    respective    signatures    hereto    and    to    re- 
spectively authorize  and  empower  the  said  trustee*  and  their 
successors  as  aforesaid,  as  attorney  in  fact  for  said  subscribers, 
to  cause  said  transfer  to  be  made  on  the  books  of  said  com- 
pany, subject  to  the  trusts  and  conditions  hereinafter  declared, 
and  for  this  purpose  to  deliver  to  said  trustees  and  their  suc- 
cessors as  aforesaid  the  certificates  evidencing  the  said  stock 
now  owned  by  them  respectively. 

2.  The  said  shares  of  stock  so  transferred  shall  be  held 
by  said  trustees  and  their  successors  for  the  common  benefit 
of  all  the  parties  to  this  agreement  and  all  those  who  may  be- 
come such  as  herein  provided  under  the  terms  and  conditions 
hereinafter  set.  forth. 

3.  As  soon  as  practicable  after  said  transfer  of  stock  on 
the  books  of  said  company  shall  have  been  made,  said  trustees 
shall  execute  and  deliver  to  each  of  the  subscribers  hereto  and 
his  assigns,   assignable   trust   certificates   for   the   number  of 
shares  set  opposite  their  respective  names. 

4.  The  interest  in  the  stock  to  be  assigned  to  the  trustees 
as    herein    provided    is    assignable    by    transfer,    upon    books 
to  be  kept  for  that  purpose  by  the  trustees  or  their  successors 
as  aforesaid,  by  the  holder  of  said  trust  certificate  or  certificates 
in  person  or  by  written  power  of  attorney  to  that  effect,  ac- 
companied by  a  surrender  of  said  certificate  or  certificates  ;  and 
a  transferee,  by  accepting  a  new  certificate  in  lieu  of  the  one 
so  surrendered,  shall  be  deemed  to  have  assented  to  the  terms 
and  conditions  of  this  agreement. 

5.  A  list  of  the  shares  of  stock  deposited  with  the  trustees 
as  herein  provided,  as  well  as  a  record  of  all  trust  certificates 
issued  and  transferred,  shall  be  made  and  kept  by  said  trustees 
and  their  successors,  which  shall  contain  the  names  and,  ad- 
dresses of  said  certificate  holders,  and  the  number  of  shares 
held  by  each,  which  said  record  shall  be  open  to  the  inspection 
of  any  certificate  holder  demanding  the  same. 

6.  The  trust  hereby  created  shall  vest  in  the  parties  of  the 
second  part  and  their  successors  in  office.     In  case  any  of  the 
said  trustees  shall   decline  to  accept  or  serve,  or  upon  the 


VOTING    TRUST  363 

resignation  of  any  of  the  said  trustees,  or  whenever  any  of  the 
said  trustees  shall  part  with  his  beneficial  interest  in  said 
company,  his  office  shall  be  deemed  to  be  vacant,  and  the  sur- 
viving or  remaining  trustees  shall  elect  his  successor,  who 
shall  have  and  exercise  hereunder  the  same  powers  ard  duties 
as  were  intrusted  to  his  predecessor  in  office  ;  it  being  distinctly 
understood  that  such  successor  shall  always  hold  a  beneficial 
interest  in  the  stock  of  said  company.  Nothing  in  this  agree- 
ment shall  be  construed  to  prevent  any  one  of  said  trustees 
from  becoming  an  individual  owner  of  trust  certificates  as 
aforesaid,  or  of  voting  for  himself  as  an  officer  or  director 
of  said  company. 

7.  Said  trustees  shall  have  power  to  admit  to  the  benefits 
of  this  trust,  on  an   equal  footing  with  the  original  parties 
thereto,  such  stockholders  in  said  company  as  may  desire  to 
become  parties  to  this  agreement. 

8.  The  trust  hereby  created  shall  continue  until  the   .... 
day  of  ....   19..,  provided  that  the  holders  of  a  (fill  in  the 
fractional  interest  as  desired)  interest  in  the  stock  held  by  the 
trustees  as  herein  provided  may  at  any  time  terminate  this 
trust  at  any  meeting  called  for  that  purpose,  written  notice 
thereof    having   been    previously    mailed    to    each    certificate 
holder  at  least  ten  days  prior  to  the  time  fixed  for  such  meet- 
ing.   Upon  the  termination  of  said  trust,  the  said  trustees  shall 
assign  and  transfer  to  the  then  holders  of  the  trust  certificates 
the  amount  of  stock  to  which  each  holder  thereof  shall  be  en- 
titled, upon  the  surrender  of  his  trust  certificate  or  certificates. 

9.  The  subscribers  hereby  constitute  and  appoint  the  said 
parties  of  the  second  part,  and  their  successors  in  office,  their, 
and  each  of  their,  true,  and  lawful  attorneys  and  proxies  to 
appear  for,  represent  and  vote  for  them  at  all  meetings  of  the 
stockholders  of  the  said  company,  with  power  to  vote  upon 
any  and  all  questions  which  may  arise  at  any  such  meeting 
or  meetings,  including  the  sale  or  mortgage  of  the  entire  fran- 
chise, assets,  and  property  of  the  corporation,  or  the  dissolu- 
tion of  such  corporation,  as  fully  and  with  the  same  effect 
as  the  said  subscribers,  or  any  of  them,  if  personally  present, 
could  do.    And  if  any  difference  of  opinion  should  arise  among 
said  trustees  or  their  successors  as  to  the  proper  vote  to  be 
cast,  then   the  voice  of  the   majority  of  said  trustees  shall 
govern ;  and  it  shall  not  be  necessary  for  said  trustees  to  as- 
semble together  to  consider  any  proposition,  nor  for  all  of 
said  trustees  to  attend  all  meetings  of  stockholders,  but  the 
wishes  of  such  absent  trustee  or  trustees  shall  be  evidenced 


364  INDUSTRIAL     CORPORATIONS 

by  a  writing  signed  by  such  absent  trustee  or  trustees.  And 
the  said  trustees  and  their  successors  are  hereby  authorized  to 
designate  some  one  of  their  number  to  actually  cast  the  vote 
which  all  of  said  trustees,  by  reason  of  their  being  joint  stock- 
holders, shall  be  entitled  to  cast. 

10.  Should  any  question  arise  upon  which  any  one  of  said 
trustees  shall  desire  the  action  of  the  holders  of  the  trust  cer- 
tificates, or  upon  which  the  owner  of  a  majority  in  value  of  said 
trust  certificate  shall  desire  such  action,  a  meeting  for  such 
purpose  may  be  called  by  the  trustees  or  majority  owners  de- 
siring same  as  aforesaid,  notice  of  which  shall  be  given  in  wri- 
ting by  United  States  mail,  addressed  to  each  of  said  cer- 
tificate holders  at  his  last  known  place  of  residence,  stating 
specifically  the  time,  place,  and  object  of  the  meeting;  such 
notice  to  be  mailed  at  least   ....   days  before  the  time  fixed 
for  holding  the   meeting.     At  such   meeting  the  owners  of 
such  trust  certificates  may  be  determined  by  a  two-thirds  vote 
in  value  of  the  certificates  so  held  by  them,  the  manner  in 
which  they  desire  the  said  trustees  to  vote ;  each  certificate 
holder  being  entitled  to  one  vote,  either  in  person  or  by  proxy, 
for  each  share  of  his  beneficial  interest  in  the  capital  stock  of 
said  company.     The  result  of  said  vote  shall  be  certified  to 
the  said  trustees  by  the  secretary  of  said  meeting,  and  the  said 
trustees  shall  cast  their  vote  accordingly. 

11.  The  legal  title  to  all   stock  transferred  under  or  by 
virtue  of  this  agreement  shall  remain  vested  in  the  said  trustees 
and  their  successors  in  trust,  and  they  shall  not  sell,  transfer 
or  assign  the  same  during  the  continuance  of  the  trust  hereby 
created. 

12.  The  said  trustees  shall  receive  all  dividends  which  may 
be  declared  from  time  to  time  upon  the  stock  held  by  them  as 
aforesaid,   and    shall   immediately   pay   out   the   same   to   the 
holders  of  the  trust  certificates  as  their  respective  interests 
may  from  time  to  time  appear. 

13.  The  said  trustees  shall  be  indemnified  and  saved  harm- 
less from  any  and  all  expenses,  costs,  damages,  and  other  lia- 
bility arising  out  of  the  acceptance  of  this  trust  and  the  issue 
of  the  trust  certificates  as  aforesaid,  each  certificate  holder 
being  liable  for  and  agreeing  to  contribute  his  proportionate 
share  thereof;  and,  whenever  any  funds  shall  come  into  the 
hands  of  said  trustees  for  distribution,  they  may  deduct  there- 
from a  sum  sufficient  to  indemnify  them  as  aforesaid,  and  di- 
vide the  balance  pro  rata  among  the  owners  of  said  trust  cer- 
tificates. 


VOTING    TRUST  365 

14.  In  case  any  certificate'  holder  shall  desire  to  sell  the 
beneficial  interest  in  said  company  owned  by  him  or  any  part 
thereof,  he  shall,  before  offering  the  same  to  any  one  else,  first 
notify  said  trustees  of  the  number  of  shares  thereof  which  he 
desires  to  sell,  and  said  trustees  shall  immediately  notify  all 
of  the  holders  of  trust  certificates,  at  their  last  known  place 
of  address,  respectively,  of  such  contemplated  sale ;  and  if  the 
party  desiring  to  sell  as  aforesaid,  shall  not,  within  ten  days 
after  so  notifying  said  trustees,  receive  an  offer  for  said  cer- 
tificates satisfactory  to  him  from  one  of  said  certificate  hold- 
ers, he  may  then,  and-  not  until  then,  offer  said  interest  for 
sale  to  some  one  not  a  party  to  this  trust  agreement ;  provided, 
that  such  holder  desiring  to  make  sale  as  aforesaid  shall  not 
at  any  time  dispose  of  any  option  of  his  beneficial  interest  to 
any  outside  person  for  the  same  or  at  a  less  price  than  he  shall 
be  offered  therefor  by  some  party  to  this  agreement. 

In  witness  whereof  the  undersigned  stockholders  as  afore- 
said have  hereunto  subscribed  their  names  and  affixed  their 
seals,  and  set  opposite  each  signature  the  number  of  shares 
held  or  owned  by  them,  respectively,  which  they  desire  to  have 
held  in  trust  as  aforesaid ;  and  the  said  trustees, .as  an  evidence 
of  the  acceptance  of  the  trust  hereby  created,  have  also  signed 
and  sealed  these  presents. 

Dated  at  the  city  of on  the day  of ,  A.  D.  19. .. 

(SEAL) 

(SEAL) 

(SEAL) 

(SEAL) 


'J 

,) 

Shares. 

.) 

Shares. 

,) 

Shares. 

(SEAL) 

Trustee. 

(SEAL) 

Trustee. 

(SEAL) 

Trustee. 

§  247.     Common  Voting  Trust  Certificate. 

No Shares. 

This  is  to  certify  that  ....  and  his  assigns  is  entitled  to 
....  shares,  of  par  value  of  ....  ($.  . .  .)  dollars  each,  of  the 
beneficial  interest  in  the  capital  stock  of  the  ....  company, 
certificates  for  which  have  been  issued  to  us,  as  trustees,  under 
and  in  pursuance  of  a  certain  trust  agreement  made  between 
:ertain  stockholders  of  said  company  and  ourselves,  as  trustees, 
dated  the day  of ,  A.  D.  19. .. 


366  INDUSTRIAL     CORPORATIONS 

The  holder  of  this  certificate  is  entitled  to  the  beneficial 
right  and  interest  provided  in  and  by  said  trust  agreement,  in- 
cluding a  proportionate  share  of  all  dividends  declared  and 
paid  on  the  stock  of  said  company  held  in  trust  as  aforesaid, 
less  his  proportionate  share  of  the  expenses  incident  to  this 
trust. 

In  witness  whereof  the  said  trustees  have  hereunto  set 
their  hands  and  affixed  their  seals  on  the  ....  day  of  ...., 
A.  D.  19... 

(SEAL) 

(SEAL) 

(SEAL) 

§  248.     Preferred  Trust  Certificate. 

This  is  to  certify  that,  as  hereinafter  provided,  ....  will 
be  entitled  to  receive  a  certificate  or  certificates  for  ....  fully 
paid  shares  of  one  hundred  dollars  each  in  the  first  preferred 
capital  stock  of  the  ....  company,  and  in  the  meantime  to 
receive  payments  equal  to  the  dividends,  if  any,  collected 
by  the  undersigned  voting  trustees  upon  a  like  number  of 
such  shares  standing  in  their  names  ;  and,  until  after  the  actual 
delivery  of  such  certificates,  the  voting  trustees  shall  possess, 
and  shall  be  entitled  to  exercise,  all  rights  of  every  name  and 
nature,  including  the  right  to  vote,  in  respect  of  any  and  all 
such  stock ;  it  being  expressly  stipulated  that  no  voting  right 
passes  by  or  under  this  certificate,  or  by  or  under  any  agree- 
ment expressed  or  implied. 

This  certificate  is  issued  under  and  pursuant  to  the  terms 
and  conditions  of  a  certain  agreement  dated  ....  by  and  be- 
tween ....  as  reorganization  managers,  and  the  undersigned 
voting  trustees.  No  stock  certificates  shall  be  due  or  de- 
liverable hereunder  before  ....,  nor  until  the  expiration  of 
such  further  period,  if  any,  as  shall  elapse  before  the  .... 
company,  for  two  consecutive  years,  shall  have  paid  ....  per 
cent  per  annum  cash  dividends  on  its  preferred  stock ;  but  the 
voting  trustees,  in  their  discretion,  may  make  earlier  delivery. 

This  certificate  is  transferable  only  on  the  books  of  the 
voting  trustees  in  ....  by  the  registered  holder,  either  in  per- 
son or  by  attorney  duly  authorized,  according  to  rules  estab- 
lished for  that  purpose  by  the  voting  trustees,  and  on  sur- 
render hereof,  and  until  so  transferred,  the  voting  trustees  may 
treat  the  registered  holder  as  owner  hereof,  for  all  purposes 
whatsoever  except  the  delivery  of  stock  certificates  hereunder 
shall  not  be  made  without  the  surrender  hereof. 


VOTING    TRUST  367 

This  certificate  is  not  valid  unless  duly  signed  by  ....  as 
agents,  and  also  registered  by  the  ....  Trust  Company,  of 
....  as  registrar  in  

This  certificate  may  be  exchanged,  in  such  manner  as  the 
voting  trustees  may  prescribe,  for  a  similar  certificate  to  be 
issued  by  ....  &  Co.,  in  behalf  of  the  voting  trustees,  and  to 
be  registered  by  the  ....  company. 

In  witness  whereof,  the  said  voting  trustees  have  caused 
this  certificate  to  be  signed  by  ....  their  duly  authorized 
agents  this  ....  day  of  ....  190. .. 

Voting  Trustees. 

By  their  agent  hereunder 

Registered  in,  ....  this  ....  day  of  ....  190. .,  ....  Trust 
Company,  of  ....  Registrar. 

By 

Ent Transfer  Clerk. 


368  INDUSTRIAL     CORPORATIONS 


CHAPTER   XXIII. 

REORGANIZATION. 

§  249.     Reorganization  Necessity. 

Many  things  may  necessitate  a  reorganization  of  the  cor- 
poration. It  is  one  form  of  dissolution  of  a  corporation,  as 
thereby  the  corporate  existence  is  extinguished  and  its  fran- 
chise surrendered  or  abandoned,  if  that  is  desired. 

The  property  owned  by  the  old  corporation  passes  by  the 
proper  transfer  to  a  new  corporation. 

Stock  are  issued  by  the  new  company  to  the  old  stockhold- 
ers, or  the  stock  may  be  issued  to  the  old  company  to  pay  for 
its  property;  then  the  old  company  liquidates  by  exchanging 
the  stock  held  by  it  in  the  new  company  for  its  own  stock 
held  by  its  stockholders. 

In  either  case  the  same  result  is  reached.  It  is  one  method 
of  "freezing  out"  or  getting  rid  of  such  stockholders  as  are  not 
in  harmony  with  the  policy  of  the  corporation. 

The  dissolution  of  a  corporation  involves  the  destruction  of 
a  contract,  as  the  Articles  of  Incorporation  or  charter  is  a 
threefold  contract,  as  between  the  corporators  and  the  State, 
the  State  and  the  corporation,  the  corporators  and  the  corpo- 
ration. 

In  other  words,  it  requires  the  joint  sanction  of  the  Legis- 
lature or  legislative  enactment  and  the  corporators.  It  was 
their  joint  act  that  brought  the  corporation  into  existence,  and 
it  requires  their  joint  action  to  dissolve  it.  They  built  it,  and 
can  alone  tear  it  down. 

Old  vs.  Co.,  (Mass.)  70  N.  E.  1022. 

Unless  the  sanction  of  the  parties  to  the  contract  are  ob- 
tained, the  corporation  can  not  be  dissolved,  nor  without  the 
sanction  by  legislative  enactment  the  corporation  can  not  be 
dissolved  by  the  corporators  or  by  the  courts  at  their  instance. 
Benedict  vs.  Co.,  49  N.  J.  Eq.  2352-23  Atl.  485. 


REORGANIZATION  369 

The  Legislature  can  authorize  dissolution  by  the  stock- 
holders without  recourse  to  the  courts,  and  this  is  the  most 
businesslike  plan. 

In  Boston  J.  M.  Co.  vs.  Langdon,  24  Pick  49,  it  is  said  of 
dissolution  of  corporations: — 

"Charters  are  in  many  respects  compacts  between  govern- 
ment and  corporators.  And  as  the  former  can  not  deprive  the 
latter  of  their  franchises  in  violation  of  the  compact,  so  the  lat- 
ter can  not  put  an  end  to  the  compact  without  the  consent  of 
the  former.  It  is  equally  obligatory  on  both  parties.  The  sur- 
render of  the  charter  can  only  be  made  by  the  formal  act  of 
the  corporation ;  and  will  be  of  no  avail  until  accepted  by  the 
government.  There  must  be  the  same  agreement  of  the  parties 
to  dissolve,  that  there  was  to  form  the  compact.  It  is  the  ac- 
ceptance which  gives  efficacy  to  the  surrender.  Dissolution  of 
a  corporation  it  is  said  extinguishes  all  its  debts.  The  power 
to  dissolve  itself  by  its  own  act  would  be  a  dangerous  power, 
and  one  which  can  not  be  supposed  to  exist." 

The  stockholders  are  the  moving  power  to  surrender  the 
charter  or  Articles  of  Incorporation,  it  can  not  be  done  by  any 
other  authority  except  the  State. 

Barton  vs.  Association,  114  Ind.  226;  16  N.  W.  486; 
Jones  vs.  Bank,  17  Pac.  Rep.  (Col.)  272. 

Unless  so  provided  by  statute  cessation,  sale  nor  insol- 
vency will  dissolve  the  corporation.  However,  expiration  of 
the  term  of  corporate  life  as  stated  in  the  law  or  charter  ends 
the  corporation,  or  the  courts  may  dissolve  for  cause. 

Mason  vs.  Co.,  25  Fed.  882 ;  Davis  vs.  Co.,  87  Ala.  633 ; 
6  So.  140 ;  Wheeler  vs.  Co.,  143  111.  197 ;  32  N.  E.  420 ; 
Miner  vs.  Co.,  93  Mich.  97;  53  N.  W.  218. 
So  that  in  the  matter  of  reorganization  the  statute  of  the 
particular  jurisdiction  of  the  corporate  domicile  must  be  con- 
sulted for  the  method  of  dissolution  in  connection  with  re- 
organization for  the  reason  that  reorganization  involves  a  dis- 
solution of  the  old  corporation  in  most  instances  in  some  form. 
We  will  assume  that  a  reorganization  of  the  company  is 
desired  and  that  all  are  willing  for  the  reorganization. 

As  reorganization  is  a  business  policy  that  involves  or  re- 
quires a  disposal  in  some  manner  the  assets  of  the  corporation, 
25 


370  INDUSTRIAL     CORPORATIONS 

it  necessarily  requires  an  inquiry  into  who  must  take  part  in 
the  proceeding. 

As  was  said  by  the  Supreme  Court  of  Iowa : — 
"It  is  the  general  rule,  however,  that  neither  the  directors 
nor  a  majority  of  stockholders  of  a  corporation  have  power  at 
common  law  to  sell  or  otherwise  transfer  all  of  its  property 
while  the  corporation  is  going,  prosperous  concern  against  the 
dissent  of  any  shareholder." 

Forrester  vs.  Co.,  55  Pac.  (Mont.)  229;  74  Pac.  1088; 

Traer  vs.  Co.  99  N.  W.  (la.)  290;  People  vs.  Ballord,  32 

N.  E.  (N.  Y.)  54;  B.  &  M.  &  Cote  &  S.  M.  Co.  vs.  M.  O. 

P.  Co.,  89  Fed.  529;  Metcalf  vs.  A.  S.  T.  Co.,  122  Fed. 

115;  Calif.  Bank  vs.  Kennedy,  167  U.  S.  362. 

Much  good  authority  disputes  this  doctrine  and  holds  that 
where  there  is  no  fraud  on  the  rights  of  any  one  and  the 
emergencies  of  business  demand  it,  then  a  majority  of  the 
stockholders  may  sell  all  of  its  assets,  even  in  the  fact  of  an 
objecting  minority. 

Miners  Ditch  Co.  vs.  Zellerbach,  37  Calif.  543 ;  Martin 
vs.  Zellerbach,  38  Calif.  300;  Bartholmew  vs.  Co.,  38  Atl. 
(Conn.)  45 ;  Treadwell  vs.  Co.,  7  Gray  (Mass.)  393. 

The  better  and  more  business  view  appears  to  be  expressed 
by  the  Supreme  Court  of  Iowa,  in  Trear  vs.  Co.,  99  N.  W.  (la.) 
29,  where  it  is  said : — 

"It  is  a  well-settled  rule  that  a  strictly  private  corporation 
has  the  same  right  to  dispose  of  its  property  that  an  individual 
has,  and  that  when  insolvent  or  in  a  failing  condition  it  may 
sell  all  thereof  without  the  consent  of  all  the  stockholders." 

This  view  is  limited  to  a  strictly  private  corporation,  and 
why  not  a  corporation  sell  all  of  its  property  with  the  same 
right  it  sells  any  part?  If  it  has  the  same  right  in  business  as 
that  of  a  natural  person,  it  becomes  a  mere  matter  .of  business, 
and  the  moment  it  is  admitted  it  can  by  its  officers  and  agents 
sell  any  portion  of  its  property.  Why  does  not  a  like  right  ex- 
ist as  to  all  of  its  assets?  It  might  be  able  to  sell  at  such  a 
profit  as  would  be  beneficial  to  it  to  close  out  its  entire  assets. 
Why  should  it  be  prevented  by  a  limited  interest  in  doing  so? 
If  the  judgment  of  the  ruling  policy  requires  a  sale  of  its 


REORGANIZATION  371 

assets,  unless  fraud  should  taint  the  sale,  no  reason  is  per- 
ceived why  it  can  not  follow  the  same  tactics  a  prudent  busi- 
ness man  would  in  a  private  business. 

§  250.     Sale  of  Corporate  Franchise. 

A  corporation  exists  complete  before  it  ever  obtains  any 
kind  of  property.    If  it  did  not,  it  never  could  receive  property. 
Martin  vs.  Deets,  102  Cal.  55. 

The  corporation  is  a  franchise  or  right  obtained  from  the 
State,  by  and  through  which  business  is  prosecuted  and  rights 
maintained.  It  is  a  threefold  contract;  the  beneficial  feature, 
after  the  corporation  is  erected,  belongs  to  the  incorporators. 
who  paid  for  its  erection  to  the  State. 

It  is  a  contract  owned  by  the  incorporators ;  can  they  sell 
or  assign  that  contract?  All  contracts  are  assignable,  but  not 
negotiable;  every  right  of  contract  was  assignable  at  common 
law. 

Bouvier  Diet. 

It  may  sell  all  of  its  assets  and  it  does  not  dissolve  the  cor- 
poration. It  remains  still  a  corporation  with  all  the  rights  it 
ever  had. 

Sullivan  vs.  Co.,  39  Cal.  459;  Miners  D.  Co.  vs.  Zeller- 

bach,  37  Cal.  543. 

Still,  while  a  corporate  franchise  is  held  to  be  a  valuable 

right,  that  it  is  a  contract  belonging  to  the  incorporators  and 

that  all  property  rights  are  assignable,  still  it  is  held  that  the 

franchise  or  right  of  existence  is  not  such  a  right  as  can  be  sold. 

State  vs.  Co.,  19  Pac.  (Kan.)  349;  16  L.  E.  184;  Detroit 

C.  S.  Ry.  Co.  vs.  C.  C,  85  N.  W.  (Mich.)  96;  Pierce  vs. 

R.  R.,  21  How.  441 ;  Davis  vs.  Co.,  87  Ala.  633 ;  6  So.  140. 

§  251.     Steps  to  Dissolve. 

With  this  brief  discussion  of  the  various  rights  and  things 
clinging  around  the  reorganization,  we  must  descend  to  the 
necessary  steps  taken  to  dissolve. 

1.  The  incorporators  must  agree  among  themselves  to  dis- 
solve the  old  company  and  erect  a  new  company. 


372  INDUSTRIAL     CORPORATIONS 

2.  This  agreement  necessarily  involves  a  meeting  of  the 
stockholders  of  the  old  company,  as  the  new  company  is  not 
yet  erected. 

3.  Also  a  meeting  possibly  of  the  directors  of  the  old  com- 
pany. 

4.  Resolutions  of  the  old  company  wherein  they  offer  to  sell 
their  holdings. 

5.  Meetings  by  the  stockholders  and  directors  of  the  new 
company    and    acceptance   of   the   offer   to   sell    by   the   new 
company. 

6.  Transfers  from  the  old  to  the  new  and  payment  for  the 
property  as  per  agreement,  either  in  cash  or  other  property 
or  stock. 

§  252.     Notice. 

Upon  authority  notice  to  all  of  the  stockholders  must  be 
given,  in  order  to  have  their  assent  or  presence ;  this  also  raises 
the  question  whether  a  stockholder  can  vote  at  such  meetings 
by  proxy. 

It  is  held  in  one  case  at  least  that  an  ordinary  proxy  given 
for  an  ordinary  meeting  can  not  be  used  to  empower  the  holder 
to  vote  to  sell  the  entire  assets  of  the  company. 
Smith  vs.  Smith,  3  Desans  (S.  C.)  557. 

Still  it  would  be  difficult  to  understand  why  an  individual 
could1  not  give  a  proxy  to  another  to  act  as  his  agent  to  sell 
all  of  the  assets  of  a  corporation,  if  the  proxy  so  expressed, 
as  a  proxy  is  no  more  than  a  written  appointment  of  an  agent 
for  a  general  or  special  purpose ;  it  could  not  be  improper 
where  the  proxy  was  given  for  the  purpose  of  enabling  the 
proxy-holder  to  vote  on  the  sale  of  the  entire  assets,  that,  if 
the  proxy  was  voted  and  the  sale  consummated,  the  giver  of 
the  proxy  would  be  estopped  or  held,  that  the  act  of  the  agent 
was  the  act  of  the  principal  and  the  sale  upheld. 

The  form  of  the  notice  should  cover  the  time,  place,  and 
purpose  of  the  meeting.  Exceeding  care  should  be  taken  to 
bring  the  knowledge  of  the  sale  of  the  corporate  assets  to  the 
knowledge  of  all  of  the  stockholders,  as  in  such  case  it  will 


REORGANIZATION  373 

l)e  less  probable  that  any  dissatisfaction  would  result  and  ob- 
viate a  ground  to  set  the  sale  aside  by  a  dissatisfied  stock- 
holder. If  it  is  required  by  the  statute  to  be  published,  then 
in  order  to  bind  the  stockholder,  notice  of  publication  must 
be  given  precisely  as  provided. 

56  Law  Rep.  Annotated  184;  Jones  vs.  R.  R.  Co.,  67  N. 
H.  119;  Bagley  vs.  Oil  Co.,  201  Pa.  78;  People  Ins.  Co. 
vs.  Wescott,  14  Gray  (Mass.)  440;  Mut.  Fire  Ins.  Co. 
vs.  Farquhar,  86  Md.  668 ;  39  Atl.  527. 

The  following  form  of  notice  is  given  as  embodying  the 
idea  of  a  proper  notice  to  stockholders  in  such  case,  to  be  pre- 
pared by  the  secretary  of  the  old  company. 

§  253.     Notice  Reorganization  Meeting  Form. 

Los  Angeles,  Cal.,  Jan.  2d,  A.  D.  1905, 
Office  of  "The  Leap  to  Light  Mining  Co." 
To  Rodney  Wilcox, 

Kansas  City,  Mo. 

You  will  please  take  notice  that  a  meeting  of  all  of  the 
stockholders  of  the  "Leap  to  Light  Mining  Company,"  and  it 
appears  by  the  books  of  the  company  that  you  are  the  owner 
of  10,000  shares,  will  be  held  at  the  parlors  of  the  Hollenback 
Hotel,  on  29th  Grant  Street,  in  the  city  of  Los  Angeles,  State 
of  California,  on  the  first  day  of  May,  A.  D.  1905,  for  the  pur- 
pose of  considering,  among  other  things,  the  reorganization  of 
the  above  company,  and  to  consider  the  sale  and  transfer  of  its 
entire  assets  as  the  best  interest  of  the  company  may  appear. 
Whereof  be  present  if  you  think  proper. 

Yours  very  respectfully, 

Lou  Stephens,  Secretary. 

Notice  should  be  served  for  such  length  of  time  before  the 
meeting  as  will  insure  sufficient  time  as  to  enable  the  stock- 
holder ample  time  to  be  present. 
Authorities  Supra. 

§  254.     Reorganization  Meeting. 

At  the  assembling  of  the  stockholders,  and  the  formalities 
of  reading  and  filing  the  notice  and  signing  of  waiver  of  notice 
is  had,  if  that  precaution  is  thought  necessary,  the  purpose  of 
the  meeting  will  possibly  be  freely  discussed  and  the  conclu- 


374  INDUSTRIAL     CORPORATIONS 

sion  arrived  at  that  Lt  is  necessary  to  reorganize,  which  will 
necessitate  a  sale  of  the  assets. 

It  will  be  found  convenient  then  to  give  a  written  expres- 
sion of  that  conclusion  upon  the  records  of  the  company  by 
a  motion  in  writing  embodying  the  fact  or  by  a  resolution  duly 
spread  out  upon  the  minutes  carrying  authority  to  the  proper 
officers  to  act  in  the  premises.  Such  motion  or  resolution  may 
be  in  the  following  form  : — 

§  255.     Stockholders  Authorize  Directors  to  Sell  Entire  As- 
sets. 

Be  It  Resolved  by  the  stockholders  of  the  "Leap  to  Light 
Mining  Company,"  in  special  meeting  assembled,  that  it  is  the 
sense  of  the  meeting  that  it  is  no  longer  profitable  to  continue 
the  business  of  this  company  under  its  present  policy. 

And  Whereas,  It  is  the  sense  of  the  stockholders  that  its 
business  should  be  wound  up  and  brought  to  a  close; 

And  Whereas,  It  is  also  the  sense  of  the  stockholders  that 
the  entire  assets  of  this  company  be  sold  and  transferred  to  a 
corporation  with  a  larger  capital  stock  and  more  financial 
backing.  Now,  therefore,  be  it — 

Resolved  and  declared  that  the  directors  of  this  corpora- 
tion be  and  they  are  hereby  instructed  and  empowered  to  sell 
all  of  the  assets  and  plant  of  this  company,  if  a  proper  price 
can  be  obtained  in  their  judgment  to  warrant,  to  the  New  Life 
Mining  Company. 

And  be  it  further  resolved  that  the  board  of  directors  of 
this  company  be  and  they  are  hereby  instructed  to  order  and 
require  the  President  and  Secretary  of  this  company  to  make, 
execute,  and  deliver  such  paper  or  papers  and  transfers  as  the 
sale  of  the  property  of  this  company  may  require. 

And  be  it  further  resolved  that  the  board  of  directors  are 
particularly  instructed  not  to  accept  a  price  for  the  property 
of  this  company  less  than  the  sum  of  five  hundred  thousand 
dollars,  to  be  paid  for  in  cash  or  in  non-assessable  preferred 
stock  of  the  New  Life  Mining  Company. 

And  be  it  further  resolved  that  should  the  board  of  di- 
rectors receive  cash  or  part  cash  and  part  stock  as  aforesaid, 
then  the  same  shall  be  distributed  among  the  stockholders  of 
this  company  pro  rata  as  their  interest  may  appear. 

And  be  it  further  resolved  that  the  stockholders  of  this 
company  agree  to  donate  to  the  New  Life  Mining  Company, 


REORGANIZATION  375 

as  a  treasury  fund,  twenty  per  cent  of  such  cash  or  non- 
assessable preferred  stock  from  their  holdings. 

And  be  it  further  resolved  that  the  board  of  directors  be 
and  they  are  hereby  instructed  to  require  the  Secretary  of  this 
company  to  notify  each  and  every  one  of  the  creditors  of  this 
company  to  render  a  statement  to  this  company  of  the  full 
amount  of  indebtedness  held  by  them  against  this  company, 
and  that  they  are  going  to  be  paid  or  provided  for  in  cash,  or 
secured  before  a  transfer  is  made  of  the  assets  of  this  company 
to  the  new  company. 

These  suggestions  will  enable  any  one  to  see  along  the  line 
of  travel  of  a  reorganization.  Such  other  features  may  be  put 
in  or  arrangement  changed  to  suit  the  facts  that  may  be  es- 
sential in  the  particular  reorganization. 

The  creditors  should  in  all  cases  be  provided  for,  as  a 
failure  to  provide  for  them,  if  there  is  any,  would  no  doubt 
entail  a  series  of  litigation  or  bill  in  equity  to  follow  the  assets 
into  the  new  company  and  subject  them  to  the  debts. 

See  Curran  vs.  Ark.,  15  How.  (U.  S.)  304;  Mason  vs.  M. 
Co.,  133  U.  S.  33 ;  Russell  vs.  Past,  138  U.  S.  425 ;  Past 
vs.  E.  Co.,  84  Fed.  Rep.  371 ;  28  C.  C.  A.  431 ;  25  Cook, 
Sec.  671-673. 

The  resolution  of  the  stockholders  will  be  passed  by  a  vote 
and  spread  out  on  the  minutes  or  filed. 

After  this  proceeding  is  complete  and  the  meeting  of  the 
stockholders  have  adjourned,  the  next  step  in  the  process  will 
be  a  meeting  of  the  board  of  directors  of  the  Leap  to  Light 
Mining  Company. 

Sufficient  has  already  been  said  generally  to  enable  the  di- 
rectors meeting  of  any  character,  and  this  one  is  no  different 
in  point  of  formality  from  any  other;  the  only  difference  pos- 
sibly is  in  the  particular  business  to  be  transacted,  and  as  to 
that,  it  is  pointed  to  that  the  stockholders'  resolution  is  the 
instructions  to  be  followed  particularly. 

It  is  therefore  in  order  for  the  board  of  directors  to  pass 
a  resolution  along  the  line  of  their  instructions  authorizing 
the  president,  secretary,  or  other  executive  authorized  to  carry 


376  INDUSTRIAL     CORPORATIONS 

out  such  business  to  make  to  the  new  company  the  proposi- 
tion embodied  in  the  resolution  passed  by  the  stockholders. 

§  256.     Resolution  Proposition  to  Sell. 

A  short  form  of  resolution  may  be  in  the  following  form : — 

The  stockholders  of  this,  the  Leap  to  Light  Mining  Co., 
having  by  resolution  authorized  and  empowered  the  board  of 
directors  to  submit  to  the  New  Life  Mining  Co.  a  proposition 
to  sell  to  the  last-named  company  all  of  its  assets,  and  the  said 
resolution  is  a  part  of  the  records  of  the  Leap  to  Light 
Mining  Co.,  and  in  the  possession  of  this  board  of  directors  and 
to  empower  or  instruct  the  proper  officers  to  make  the  proposi- 
tion to  the  New  Life  Mining  Co.  as  aforesaid. 

Now,  therefore,  in  conformity  therewith  and  pursuant 
thereto,  the  president  of  the  Leap  to  Light  Mining  Co.,  to- 
gether with  the  Counsel  of  this  company,  are  hereby  instruct- 
ed and  empowered  to  present  a  written  proposal  to  the  New 
Life  Mining  Co.,  in  conformity  with  the  resolution  of  the  stock- 
holders herewith  placed  in  the  possession  of  the  said  president 
and  counsel,  and  report  to  this  board  of  directors  all  your  acts 
and  doings  in  that  behalf  with  all  convenient  speed. 

The  counsel  of  the  company  will  proceed  to  prepare  the 
necessary  written  proposal  to  the  New  Life  Mining  Company, 
in  exact  conformity  with  the  board  of  directors'  resolution, 
which  is  practically  the  same  as  the  stockholders  resolution ; 
the  stockholders  empower  the  board  of  directors  to  act,  and 
the  board  of  directors  empower  the  executive  officers  of  the 
corporation  to  act,  along  the  same  line  of  business. 

Such  proposal  may  be  as  indicated  in  the  form  as  follows : — 

§  257.     Proposition  to  Sell. 

To  the  New  Life  Mining  Company:  Pursuant  to  a  resolu- 
tion of  the  board  of  directors,  acting  under  instructions  from 
the  stockholders  of  the  Leap  to  Light  Mining  Company,  the 
undersigned  is  instructed  to  submit  a  proposition  to  you  for 
the  sale  of  the  assets  of  the  last-named  company,  as  follows : — 

(Here  insert  in  written  form  the  proposition  offered,  with 
all  schedules  of  assets,  price,  terms,  precisely  and  complete, 
embodying  the  exact  proposition  to  be  made  by  the  selling 
company  to  the  purchasing  company.) 

Should  your  company  see  fit  to  accept  the  proposition  or 
offer  to  sell  embodied  in  the  written  offer  here  proposed,  you 


REORGANIZATION  377 

will  please  indicate  the  same  at  your  earliest  possible  con- 
venience to  the  undersigned  or  the  counsel  for  the  said  com- 
pany. Yours  respectfully, 

Sampson  Snyder,  President. 

§  258.     Meeting  of  Incorporators  of  New  Company. 

The  new  company  incorporators  will  meet  and  decide 
whether  they  will  accept  the  offer  of  the  old  company.  These 
matters  are  mere  formal  matters,  as  the  matter  of  the  re- 
organization no  doubt  has  all  been  canvassed  among  the  mem- 
bers of  both  companies  beforehand,  but  a  record  is  necessary 
possibly  to  keep  pace  with  the  trend  of  business. 

§  259.     Resolution  of  New  Company. 

Be  it  resolved  by  the  New  Life  Mining  Company  that  the 
proposition  made  by  the  Leap  to  Light  Mining  Company  to 
sell  its  assets,  as  per  the  schedule  and  invoice  therein  stated, 
and  on  file  with  this  company,  to  be  paid  for  in  five  hundred 
thousand  dollars'  worth  of  par  value  preferred  stock  of  the 
New  Life  Mining  Company,  and  the  twenty  per  cent  rebate  on 
the  purchase  price  should  the  proposition  be  accepted,  appears 
to  be  worth  the  amount,  and  it  further  appearing  that  this  com- 
pany can  use  the  same  in  its  business. 

Therefore  it  is  ordered  that  the  board  of  directors  of  the 
New  Life  Mining  Company  are  instructed  to  purchase  the  en- 
tire assets,  if  in  their  judgment  the  purchase  is  a  good  one,  of 
the  Leap  to  Light  Mining  Company,  as  per  their  offer,  and 
issue  in  payment  therefor  the  500,000  shares  of  preferred  stock 
of  the  New  Life  Mining  Company,  as  the  Leap  to  Light  Min- 
ing Company  may  direct. 

§  260.     Meeting  of  Board  of  Directors  of  New  Life  Mining 

Company. 

Omitting  the  formalities  of  the  board  of  directors,  as  that 
is  assumed  now  to  be  well  understood,  as  this  board  meeting 
is  no  different  from  any  other,  and  the  board,  being  instructed 
to  act  upon  the  proposition,  will  pass  a  resolution  similar  to 
the  following: — 

§  261.     Resolution  Accepting  Proposition. 

Whereas,  upon  inspection  of  the  property  offered  by  the 
Leap  to  Light  Mining  Company,  it  appears  to  be  worth  the 
price  asked ; 


378  INDUSTRIAL     CORPORATIONS 

Now  therefore  the  offer  of  the  said  company  is  accepted, 
and  when  the  proper  bills  of  sale,  deeds,  and  assignments  are 
presented  to  the  president  of  the  New  Life  Mining  Company 
and  approved  by  counsel  for  the  company,  the  deal  will  be 
closed  accordingly. 

Now  therefore  the  president,  together  with  the  counsel  of 
this  company  are  instructed  to  notify  the  Leap  to  Light  Min- 
ing Company  that  its  proposition  has  been  accepted  and  that 
they  may  proceed  to  prepare  the  necessary  papers,  transfers, 
etc.,  and  submit  the  same  to  the  counsel  of  this  company,  and 
when  approved,  the  payments  will  be  made  by  the  New  Life 
Mining  Company  in  conformity  with  the  original  proposition. 

It  is  further  resolved  that  counsel  of  this  company  (or 
whom  ever  the  board  may  designate)  be  and  he  is  hereby  in- 
structed to  receive  the  twenty  per  cent  bonus  out  of  purchase 
price  as  a  trustee  for  the  New  Life  Mining  Company,  and  them 
hold  until  the  further  instructions  of  this  board. 

It  is  further  ordered  that  this  resolution  be  served  on  the 
president  of  the  Leap  to  Light  Mining  Company,  and  such 
other  notice  given  such  company  as  will  apprise  them  of  the 
action  of  New  Life  Mining  Company  in  the  premises. 

These  transactions  as  here  indicated  are  suggestions  along 
the  lines  indicated  for  the  action  of  the  two  companies  con- 
cerning reorganization. 

Whatever  and  however  varied  the  matter  of  reorganiza- 
tion may  be,  it  must  proceed  along  the  course  here  indicated, 
and  the  facts  may  be  stated  and  business  transacted  accord- 
ingly. 

These  observations  will  serve  to  lay  out  a  plan  of  sugges- 
tions to  be  followed  or  varied,  enlarged  or  contracted,  to  suit 
those  who  consummate  the  business. 


CONSOLIDATION    OF    COMPANIES  379 


CHAPTER   XXIV. 

CONSOLIDATION  OR  AMALGAMATION  OF  COMPANIES. 

§  262.     Process  of  Consolidation. 

The  proceedings  or  process  of  consolidating  corporations 
are  somewhat  analogous  to  the  reoganization  of  a  corpo- 
ration. 

In  the  consolidation  there  must  be  two  or  more  companies, 
while  in  the  reorganization  there  is  generally  only  one. 

The  consolidation  will  necessarily  work  a  dissolution  of 
the  companies  consolidated,  or  will  at  least  strip  them  of  their 
assets,  which  works  a  dissolution  in  some  jurisdictions  the 
same  as  a  reorganization. 

The  result  reached  in  either  case  is  the  formation  of  a 
company  to  take  over  the  assets  of  the  consolidated  or  re- 
organized companies. 

The  proceedings  in  consolidation  do  not  destroy  the 
rights  of  creditors  any  more  than  reorganization  ;  they  must 
be  noticed  and  protected  in  order  to  avoid  litigation  in  a 
struggle  to  protect  their  own.  The  new  company  possibly 
should  be  made  a  party  to  actions  commenced  before  con- 
solidation. The  new  company  receives  the  property  as  a  trust 
fund,  which  a  court  of  equity  will  trace  and  impress. 

Corporate  life  is  not  lessened  to  the  new  company  by  re- 
organization. 

Maine  Cent.  R.  R.  Co.  vs.  Maine,  96  U.  S.  499 ;  Market 
St.  Ry.  Co.  vs.  Hellman,  109  Cal.  571. 

New  company  must  be  substituted  in  litigation  with  old 
company  to  impress  trust  fund. 

Ry.  Co.  vs.  Howard,  7  Wall  (U.  S.)  392;  Agriculture 
Soc.  vs.  Hunter,  110  111.  155;  East  Tenn.  R.  R.  Co.  vs. 
Evans  Heisk,  (Tenn.)  407. 

In  consolidation  all  parties  to  contracts  must  be  consulted 


380  INDUSTRIAL     CORPORATIONS 

and  their  consent   obtained,  else  such   contracts  can   not  be 
transferred  as  a  part  of  the  company's  assets. 

New  Jersey  Midland. R.  R.  Co.  vs.  Strait,  36  N.  J.  L.  322 ; 

Bruffett  vs.  Great  Western  R.  R.  Co.,  25  111.  353. 

In  another  feature  of  consolidation,  if  the  consolidation 
is  affected  by  means  of  absorption  of  one  or  two  companies 
by  the  third  company,  then  it  is  practically  a  sale  or  a  merger, 
and  the  company  which  takes  in  the  others  remains  in  statu  quo. 

The  business  of  bringing  about  a  merger  or  consolidation 
will  be  performed  by  the  board  of  directors.  If  the  statute 
prescribes  the  plan  of  consolidation  that  must  be  followed  in 
the  State  where  the  consolidation  shall  take  place,  and  if  the 
statute  requires  a  greater  number  than  a  majority  of  the 
stockholders  sanction,  then  the  statute  must  be  fulfilled  to  a 
letter. 

The  stockholders  must  be  consulted  when  the  plans  are  all 
formulated  or  all  preliminary  proceedings  have  been  con- 
summated or  agreed  upon,  and  unless  authority  is  given  by 
statute  to  consolidate,  then  all  of  the  stockholders  must  give 
their  consent  in  some  manner,  or  consolidation  can  not  hap- 
pen against  the  dissent  of  a  stockholder. 

Mowrey  vs.  Co.,  4  Brissell,  78;  Fed.  Co.'s  No.  9891 ; 

Clearwater  vs.  Meredith,  1  Wall  (U.  S.)  25 ;  L.  &  N.  Y. 

Co.  vs.  Ky.  161  U.  S.  677;  People  vs.  Co.,  121  N.  Y.  582; 

Pierce  vs.  Ry.  Co.,  91  How.  341 ;  Hill  vs.  Nisbett,  100 

Ind.  341. 

The  State  may  lawfully  prohibit  consolidation. 
L.  &  N.  Ry.  vs.  Ky.,  Supra. 

Consolidation  is  only  one  form  of  sale  of  corporate  assets, 
and  is  a  matter  of  business  of  the  consolidated  companies, 
and  where  there  is  no  statutory  inhibition  may  be  done  with 
the  consent  of  the  stockholders  as  any  other  business. 

Toledo  Ry.  Co.  vs.  Co.,  95  Fed.  Rep.  497;  36  cc.  A.  155 ; 

Matter  of  P.  P.  Ry.  Co.,  67  N.  Y.  371 ;  Lauman  vs.  Ry. 

Co.,  30  Pa.  St.  42;  Racine  Co.  vs.  Ry.  Co.,  49  111.  331." 

Some  courts  seem  to  have  held  it  necessary  in  order  to 


CONSOLIDATION    OF    COMPANIES  381 

effect  a  consolidation  that  some  sort  of  statutory  sanction 
must  exist. 

Pierce  vs.  Co.,  22  How.  (U.  S.)  441 ;  Cole  vs.  Co.,  30  N. 

E.,  (N.  Y.)  157111.641. 

Some  States  limit  the  right  to  consolidate  to  the  same  kind 
of  corporations. 

In  Re  Ry.  Co.,  67  N.  Y.  371. 

If  the  right  of  consolidation   exists  by  statute,  the  ma- 
jority may  effect  a  merger  against  the  dissent  of  the  minority. 
Sprague  vs.  Co.,  90  111.  174;  Spero  vs.  Co.,  7  Ind.  369. 

If  a  new  corporation  is  formed,  the  same  proceedings 
thereto  will  have  to  be  followed  as  any  other  new  corporation, 
and  the  same  fees  paid  unless  statutory  reasons  exist  contrary. 

P.  vs.  Co.,  113  U.  S.  296;  Contra  People  vs.  Co.,  29  N. 

E.  (N.  Y.)  951. 

Creditors  can  not  prevent  consolidation ;  they  are  inter- 
ested in  nothing  but  the  satisfaction  of  their  claims  out  of 
the  assets,  and  must  proceed  in  equity  for  that  purpose,  and 
nothing  else. 

N.  D.  Ry.  vs.  Company,  120  Mass.  397 ;  People  vs.  Co., 
92  N.  Y.  105 ;  Rock  I.  Ry.  vs.  Moffitt,  75  111.  524. 

The  state,  under  its  police  power  over  corporations,  may 
impose  a  consolidation  tax,  or  it  may  treat  the  corporation 
as  a  new  corporation  and  place  an  organization  tax  upon  it. 

People  vs.  Pfister,  57  Cal.  532;  49  Ohio  St.  504;  153 

U.  S.  436. 

§  263.     Consolidation,   Particulars   of. 

Sufficient  has  been  said  to  show  the  character  of  business 
to  be  done  in  a  consolidation,  its  rights  under  the  law,  and 
who  may  proceed.  It  now  becomes  necessary  to  descend  to 
the  actual  contracts  to  be  entered  into  among  the  respective 
corporations. 

As  in  all  corporate  acts,  the  board  of  directors  of  each  cor- 
poration must  prepare  a  resolution  of  consolidation  which 
must  be  adopted  by  each  of  the  respective  boards  of  directors. 


382  INDUSTRIAL     CORPORATIONS 

The  preamble  or  reasons  why  or  the  motives  inducing  the 
consolidation  may,  for  the  sake  of  business  brevity,  be 
omitted,  yet  it  will  not  vitiate  the  proceedings  to  insert  all 
the  reasons  for  consolidation. 

The  consolidation  of  corporations  are  but  corporate  con- 
tracts, which  may  and  should  be  made  to  conform  to  the 
agreement  of  the  respective  parties  to  the  contract,  as  the 
facts  or  truth  of  the  consolidation  may  appear. 

If  the  consolidation  results  in  the  entire  assets  being  trans- 
ferred to  a  new  corporation,  then  the  consolidation  must  pro- 
ceed along  the  line  of  a  sale  by  each  corporation  to  the  new 
corporation,  that  must  be  incorporated  under  the  laws  of  some 
State  or  Territory,  and  in  such  case  the  contract  of  consolida- 
tion may  be  and  should  be  a  separate  contract  from  the  Ar- 
ticles of  Incorporation,  yet  this  is  not  necessarily  true,  as  the 
features  of  the  new  corporation  will  in  all  probability  be  one 
of  the  terms  of  the  consolidation,  and  if  so,  should  be  ex- 
pressed in  the  contract. 

If  the  consolidation  is  made  and  the  consolidating  com- 
panies are  merged  into  one  of  their  number  or  absorbed  by 
one  of  their  number,  then  it  may  possibly  be  necessary  to 
amend  the  Articles  of  Incorporation  of  the  absorbing  com- 
pany so  that  its  capital  stock  may  be  large  enough  to  cover 
the  assets  it  will  receive  from  the  companies  it  absorbs ;  this 
will  depend  on  the  character  of  the  agreement  to  consolidate. 

It  is  not  to  be  understood  that  consolidation  of  corpora- 
tions is  anything  else  than  an  agreement  between  the  cor- 
porations, and  they  can  make  any  kind  of  agreement  they 
wish  and  in  any  form,  unless  there  is  a  method  of  consolida- 
tion pointed  out  by  statute;  in  such  case,  of  course,  that 
method  must  be  followed  in  so  far  as  it  points  out  the  pro- 
cedure. 

The  counsel  of  the  various  consolidating  corporations  may 
prepare  an  agreement  similar  in  form  to  the  following,  if  that 
expresses  the  plan  of  consolidation  desired,  or  he  may  insert 


CONSOLIDATION    OF    COMPANIES  383 

or  expunge  any  feature  not  in  accordance  with  the  facts  of 

his  case,  to  wit : — 

§  264.     Resolution  of  Agreement  to  Consolidate. 

This  agreement  witnesseth :  That  it  is  the  desire  of  the 
Broad  Street  Ry.  Co.,  The  Lincoln  Street  Ry.  Co.,  and  the 
Pennsylvania  Street  Ry.  Co.  to  consolidate  their  respective 
holdings,  assets,  franchises,  capital  stocks,  and  liabilities. 

And  Whereas,  It  has  been  considered  by  the  various  boards 
of  directors  of  the  said  companies  that  such  consolidation  and 
amalgamation  would  be  mutually  beneficial  to  each  of  the  said 
respective  companies ; 

And  Whereas,  The  terms  of  amalgamation  and  consolida- 
tion of  the  assets,  liabilities,  rights,  and  franchises,  have  been 
agreed  upon  among  the  several  companies  as  follows,  to  wit : — 

1.  That  such  consolidation  shall  be  consummated  at  once 
upon  the  ratification  of  this  agreement  by  the  stockholders  or  a 
majority  thereof. 

2.  That  this  agreement  shall  begin  with  its  ratification  by 
the  stockholders  or  a  majority  thereof  and  continue  for  twenty- 
five  years  thereafter,  and  may  be  continued  from  time  to  time 
by  the  assent  of  the  required  stockholders,  or  changed  from 
time  to  time  as  the  best  interest  of  the  consolidation   may 
appear. 

3.  That  the  name  of  the  new  company  shall  be  the  New 
Broad  Street  Ry.  Co.  (or  a  new  name  entirely  if  desired). 

4.  That  the  entire  assets,  franchises,  and  liabilities  shall  be 
vested  in  the  new  consolidated  company  by  the  proper  trans- 
fers and  said  consolidated  company  shall  complete  and  per- 
form all  and  singular  the  contracts  of  each  of  the  respective 
consolidating  companies  generally  and  specially  and  fully  as 
the  respective  consolidating  companies  had  agreed  to  do. 

5.  That  the  office  of  the  said  consolidated  company  shall  be 
at  300  Pennsylvania  Street,  Washington,  D.  C. 

6.  That  the  affairs  of  the  consolidated  company  shall  be  a 
board  of  directors  which  shall  consist  of  not  less  than  thirteen 
members,  to  be  elected  annually  from  among  the  stockholders 
of  the  consolidated  company  on  the  second  Monday  of  March 
of  each  and  every  year  after  the  first  election,  which  shall  occur 
immediately  after  acceptance  of  the  agreement  of  consolidation 
by  the  several  stockholders  of  the  consolidating  company. 

7.  That  shares  may  be  allotted  to  the  various  stockholders 
by  the  consolidated  company  as  their  interest  may  appear  on 
the  books  of  the  respective  companies 


384  INDUSTRIAL     CORPORATIONS 

8.  That  the  capital  stock  of  the  new  consolidated  company 
shall  be  the  amount  of  the  aggregate  amount  of  stock  of  the 
three  consolidated  companies,  to  wit:    3,000,000  shares,  which 
shall  be  distributed  to  the  respective  companies'  shareholders ; 
500,000  shares  to  the  Broad  St.  Ry.  Co.  shareholders;  1,500,- 
000   shares    to    the    Pennsylvania    St.    Ry.    Co.    shareholders; 
1,000,000  shares  to  the  Lincoln  St.  Ry.  Co.  shareholders. 

9.  That  bonds  shall  be  issued  to  cover  the  entire  indebted- 
ness of  the  three  respective  railway  companies,  in  denomina- 
tion of  1,000  dollars  each,  at  six  per  cent  interest,  to  run  for 
twenty-five  years,  with  the  option  therein  contained  on  the  part 
of  the  consolidated  company  to  refund  or  pay  the  same  off  at 
the  expiration  of  ten  years. 

10.  That  said  bonds  shall  be  sold  at  not  less  than  par ;  first, 
to  the   stockholders,   if  they  want  such   bonds ;  and  second, 
through  the  Wabash  Trust  Company,  of  New  York ;  or  third, 
such   creditors  of  the   respective   companies   shall   have   such 
bonds  as  their  respective  claims  appear,  if  they  so  desire. 

Whereas,  A  majority  of  the  stockholders  having  given  their 
written  consent  to  the  consolidation,  and  the  same  is  now  on 
file  with  the  respective  companies  and  this  company ;  (or  the 
stockholders  in  meeting  assembled  passed  resolutions  of  con- 
solidation, as  the  case  may  be ;) 

Resolved,  That  the  amalgamation  agreement  heretofore  set 
forth  be  and  the  same  is  accepted  by  this  company  and  the 
President  and  Secretary  are  authorized  and  directed  to  carry 
out  the  terms  of  this  agreement  in  the  usual  form  and  enter 
into  such  other  agreements  of  consolidation  as  required  by  law 
in  such  cases  made  and  provided. 

Now  if  consolidation  is  going  to  take  place  in  those  juris- 
dictions where  a  statutory  mode  is  provided  and  articles  of 
consolidation  are  to  be  drawn  in  conformity  therewith,  the 
statute  must  be  consulted  and  followed  in  each  instance  as 
far  as  the  articles  of  consolidation  are  concerned. 

In  those  jurisdictions  where  the  right  of  consolidation  has 
not  been  limited  or  interfered  with  by  statutory  encroach- 
ment, the  consolidation  is  a  mere  contract  of  sale  in  effect 
of  all  of  its  property  to  another  corporation  and  a  receipt  in 
payment  of  cash  or  other  property,  as  may  be  agreed  upon 
between  the  contracting  parties. 

The  business  view  of  consolidation   is  that  when  a  cor- 


CONSOLIDATION    OF    COMPANIES  385 

poration  is  formed  to  do  any  character  of  business,  it  may  sell 
any  or  all  of  the  property  in  that  business  whenever  its  stock- 
holders see  fit  to  do  so  or  whenever  they  can  profit  to  their 
satisfaction.  It  is  a  right  of  contract  protected  by  the  Con- 
stitution of  the  United  States. 

And  in  so  far  as  the  transfer  of  the  assets  to  another  cor- 
poration, consolidation  is  analogous  to  reorganization. 

If  a  new  company  is  to  be  formed,  then  Articles  of  Incor- 
poration must  be  prepared  substantially  according  to  the 
agreement  of  consolidation  and  the  laws  complied  with  ac- 
cording to  the  laws  of  the  place  where  consolidation  shall 
take  place  and  the  transfers  made  to  the  new  company  as 
transfers  would  be  made  in  forming  a  corporation  in  any  case 
in  the  first  place. 

If  one  of  the  consolidated  companies  are  used  to  which  the 
property  is  transferred,  then  the  capital  stock  may  be  enlarged 
by  an  amendment  or  the  name  changed  in  the  same  way. 

The  signing  of  the  contract  of  consolidation  will  have  to 
be  done  in  the  same  way;  the  corporation  would  sign  or 
execute  any  contract  as  follows : — 

In  Witness  Whereof,  The  respective  corporations  have 
separately  executed  these  presents  and  affixed  their  signatures 
pursuant  to  a  resolution  of  the  board  of  directors  and  caused 
their  seals  to  be  affixed. 

Dated  this  20th  day  Lincoln  Street  Ry.  Company, 

of  May,  A.  D.  1905.  By  James' Ramsey, 

(SEAL)  President. 

Broad  Street  Ry.  Company. 

By  John  T.  Smith, 

(SEAL)  President. 

Pennsylvania  Street  Ry.  Company. 
By  Semore  Thompson. 
(SEAL)  President. 

In  whatever  manner  the  consent  of  the  stockholders  is 
desired,  whether  by  written  consent  filed  or  by  resolution  in 
meeting  assembled  or  by  resolution  of  the  stockholders  after 
consolidation,  the  purpose  of  it  all  is  to  bind  the  various 
stockholders  to  the  consolidation,  so  they  may  not  afterward 
26 


386  INDUSTRIAL     CORPORATIONS 

contend  they  were  not  consulted  or  never  agreed  to  the 
merger. 

Under  statutory  consolidations  sometimes  the  newspaper's 
hand  appears,  and  publication  is  required ;  in  such  case  a 
notice  in  conformity  with  the  requirements  of  the  particular 
statute  is  all  that  is  essential. 

Otherwise  no  notice  is  necessary  and  none  need  be  pub- 
lished. 

§  265.     Form  of  Articles  of  Consolidation. 

Company. 

Company. 

Company. 

Know  all  men  by  these  presents :  That  whereas  these  ar- 
ticles made  and  executed  on  the  first  day  of  May,  1905,  by  and 
between  the  ....  Company,  party  of  the  first  part,  and  .... 
Company,  party  of  the  second  part,  and  ....  Company, 
party  of  the  third  part ;  all  of  said  parties  being  railroad  corpo- 
rations duly  organized  and  existing  under  the  laws  of  the  State 
of  .  . .  .,  and  having  their  respective  principal  places  of  business 
in  the  city  of  . . . .,  in  said  State. 

Witnesseth,  That  the  said  party  of  the  first  part,  the  . . . ., 
is  the  owner  of  certain  street  railways  in  the  streets  of,  and 
within  the  corporate  limits  of  the  aforesaid  city  and  State, 
more  particularly  described  as  follows:  Commencing,  etc., 
(here  specify  particularly  the  point  of  commencement,  route, 
and  termini  of  each  and  every  line  owned  and  operated).  The 
total  length  of  said  railways  being,  as  estimated,  ....  miles ; 
and  also  of  all  rights,  franchises,  and  privileges  granted  in  re- 
spect of,  and  in  connection  with  said  railways.  And  the  said 
party  of  the  first  part  is.  also  the  owner  of  certain  rights,  fran- 
chises, and  privileges  for  the  construction,  maintenance,  and 
operation  of  street  railways  in  the  streets  and  within  the  cor- 
porate limits  of  said  city,  more  particularly  described  as  fol- 
lows, to  wit :  Commencing,  etc.  (here  insert  a  particular  de- 
scription of  point  of  commencement,  route,  and  termini  of 
franchise  granted,  but  not  built  upon  or  improved). 

And  witnesseth  that  said  party  of  the  second  part  is  the 
owner,  etc.  (here  describe  its  properties  in  the  same  form). 

And  witnesseth  that  the  party  of  the  third  part:  (here 
describe  the  property  of  the  third  party). 

And  Whereas,  Said  parties,  and  all  of  them,  are  now,  and 


CONSOLIDATION    OF    COMPANIES  387 

ever  since  their  organization  and  incorporation  have  been, 
railroad  corporations  duly  and  lawfully  organized  and  existing 
as  such  under  the  laws  of  the  State  of  ....  relating  to  the 
formation  and  existence  of  railroad  corporations. 

And  Whereas,  The  said  respective  parties  believe  that  a 
consolidation  and  amalgamation  of  their  capital  stock,  their 
debts,  properties,  assets,  and  franchises,  will  be  mutually  ad- 
vantageous. 

And  Whereas,  The  respective  boards  of  directors  of  said 
corporations,  parties  hereto,  have  agreed  upon  the  consolida- 
tion and;  amalgamation  of  said  corporations,  their  capital 
stocks,  debts,  properties,  assets,  and  franchises  in  the  follow- 
ing manner,  to  wit : — 

1.  That  the  said  consolidation  and  amalgamation  shall  be 
made  at  once,  and  that  the  name  and  style  of  the  consolidated 

and  amalgamated  corporation  shall  be  " "     That  it  shall 

continue  in  existence  for  a  period  of  ....   from  the  date  of 
these  articles. 

2.  That  the  several  capital  stocks,  debts,  properties,  assets, 
and  franchises,  held,  owned,  or  possessed  by  each  of  said  cor- 
porations shall  be  vested  in  said  consolidated  and  amalgamated 
corporation,  as  fully  as  the  same  are  now  severally  held  and 
enjoyed  by  them,  respectively  subject,  however,  to  all  the  con- 
ditions,   stipulations,    contracts,    liens,    claims,    and    charges 
thereon,  and  to  all  debts  and  obligations  of  said  respective 
corporation ;  and  said  consolidated  and  amalgamated  corpora- 
tion shall  fully  complete,  carry  out,  and  perform  all  valid  con- 
ditions, stipulations,  and  contracts  heretofore  made  by,  and 
shall  pay  and  discharge  all  liens,  claims,  and  charges  hereto- 
fore created  or  suffered  by  any  of  said  corporations  on  their 
respective  properties  and  shall   pay  and  discharge  all  valid 
debts  and  obligations  of  every  kind,  character,  and  description 
incurred  or  assumed  by  or  now  existing  against  any  of  said 
corporations. 

3.  That  the  objects,  the  purposes,  the  capital  stock,  the 
board  of  directors,  and  the  principal  place  of  business  shall  be 
as  expressed  in  the  articles  of  consolidation,  amalgamation  and 
incorporation  hereinafter  set  forth. 

4.  That  the  stockholders  of  each  of  said  corporations,  par- 
ties hereto,  shall  have  issued  to  them  the  number  of  shares  of 
the  capital  stock  of  the  consolidated  and  amalgamated  corpo- 
ration, which  the  board  of 'directors  of  the  corporations,  par- 
ties hereto,  have  allotted  to  such  stockholders  respectively, 


388  INDUSTRIAL     CORPORATIONS 

upon  the  surrender  of  the  certificates  of  stock  held!  by  said 
stockholders  in  said  corporations  respectively. 

And  Whereas,  The  holders  of  more  than  three-fourths  in 
value  of  all  the  capital  stock  of,  and  issued  by,  each  of  said 
respective  boards  of  directors,  and  for  the  purposes  expressed 
in  the  articles  of  consolidation,  amalgamation,  and  incorpora- 
tion following: — 

Now,  therefore,  know  all  men  by  these  presents :  That  the 
parties  hereto  in  pursuance  of  the  laws  of  the  State  of  ...-., 
in  such  cases  made  and  provided,  do  hereby  consolidate  and 
amalgamate  their  capital  stock,  debts,  properties,  assets,  and 
franchises  for  the  uses  and  purposes  aforesaid,  and  do  hereby 
vest  the  same  in  the  said  consolidated  and  amalgamated  cor- 
poration ....  Company,  and  in  pursuance  of  said  consolida- 
tion and  amalgamation,  and  in  order  to  more  fully  carry  the 
same  into  force  and  effect,  do  hereby  adopt  the  following  ar- 
ticles of  consolidation,  amalgamation,  and  incorporation : — 

I. 

The  name  of  said  consolidation  and  amalgamated  corpo- 
ration shall  be 

II. 

The  objects  and  purposes  of  said  consolidated  and  amalga- 
mated corporation  are  as  follows,  to  wit:  (Then  follow  the 
purposes  as  in  original  articles  by  which  a  street  railway  cor- 
poration is  formed  with  respective  routes,  covering  the  entire 
ground  separately  covered  by  all  the  three  companies  prior  to 
consolidation.) 

The  total  length  of  railroads,  as  estimated,  is  ....  miles 
(giving  the  aggregate  milage  of  the  three  companies)  or  there- 
abouts. Also  along  and  upon  other  parts  of  the  same  or  any 
other  streets,  alleys,  highways,  roads,  or  lands  of  said  city. 

(The  third,  fourth,  fifth,  and  sixth  paragraphs  usually  are 
the  same  as  in  the  articles  of  other  incorporations.) 

VII. 

The  amount  of  capital  stock  which  was  actually  subscribed 
in  each  of  said  corporations,  parties  hereto,  at  the  time  of  their 
formation,  and  the  names  of  the  persons  by  whom  the  same 
were  subscribed,  and  the  number  of  shares  subscribed  by  and 
then  held  by  each,  was  as  set  forth  in  the  original  Articles  of 
Incorporation  of  the  several  companies  now  consolidated  and 
amalgamated  and  the  same  was,  and  now  is,  more  than  one 
thousand  dollars  per  mile  of  the  estimated  length  of  the  sev- 
eral railroads  mentioned  and  described  in  the  said  respective 
Articles  of  Incorporation. 


CONSOLIDATION  OF  COMPANIES  389 

VI  IT. 

That  of  the  capital  stock  of  each  of  said  corporations  had. 
at  the  time  of  their  formation  (where  the  same  was  required 
by  law),  been  actually  paid  to  the  respective  treasurers 
thereof,  the  amounts  specified  in  their  original  Articles  of  In- 
corporation verified  by  the  affidavits  filed  in  the  office  of  the 
Secretary  of  the  State  of  .  .  .  . ,  and  the  amount  so  paid  in  were 
in  each  case  ....  per  cent  of  the  subscribed  capital  stock. 

IX. 

The  amount  of  the  capital  stock  of  the  said  corporations 
which  has  been  subscribed  and  actually  paid  in  exceeds  the 
amount  of  one  thousand  dollars  per  mile  of  the  entire  length 
of  the  said  railroad,  as  estimated  and  as  stated  and  as  set 
forth  in  Article  II  hereof. 

In  witness  whereof,  the  said  parties  have  caused  these 
presents  to  be  signed  by  its  corporate  name,  by  their  respective 
presidents  and  secretaries  and  their  corporate  seals  to  be 
hereunto  affixed,  pursuant  to  resolutions  of  their  respective 
boards  of  directors,  this  ....  day  of  . . . .,  1905. 

Company, 

By :. 

President. 

(SEAL)  

Secretary. 
Company, 

By t 

President. 

(SEAL)  

Secretary. 
Company, 

By 

President. 
(SEAL)  

Secretary. 

(Acknowledgments  of  each  and  all  of  those  signing  if  ac- 
knowledgment is  required  by  statute.) 

This  form  possibly  is  full  enough  to  enable  counsel 
familiar  with  the  facts  and  wants  of  the  parties  to  draw  any 
article  of  consolidation  under  any  statute,  each  of  which,  of 
course,  would  have  to  be  regarded  and  followed  where  there 
is  one. 


390  INDUSTRIAL     CORPORATIONS 


PART    II. 

* 

CHAPTER   XXV. 

FORMS. 

HOW    TO    FILL    BLANKS    AND    CONVERT    FORMS    FROM    PERSONS 
TO    CORPORATIONS   AND   VICE   VERSA. 

§  266.     Introduction  to  Forms. 

The  forms  and  precedents  hereafter  given,  most  of  them 
have  stood  the  test  of  juridical  scrutiny  and  long  use.  There 
is  nothing  superhuman  about  them ;  they  only  bear  the  im- 
print of  usage  and  custom  and  the  gist  of  brief  and  concrete 
forms  of  common  sense. 

They  are  most  of  them  in  full  form,  and  are  all  convertible 
into  use  by  either  corporation  or  individuals.  The  difficulty 
lies  in  just  how  to  make  the  change. 

It  is  often  difficult  for  even  lawyers  to  transform  an  ordi- 
nary blank  form  used  by  individuals  into  an  instrument  for 
a  corporation.  The  author  has  seen  corporate  instruments 
drawn  by  attorneys  using  such  language  as  "its  heirs,  exe- 
cutors, administrators  and  assigns,"  instead  of  "its  successors 
and  assigns,"  and  also  such  language  as  "  S.  P.  Co.,  of 
Kansas  City,  Mo.,"  instead  of  "S.  P.  Co.,  formed  under  the 
laws  of  Missouri,  with  its  place  or  principal  place  of  business 
at  Kansas  City,"  and  such  as  "Palo  Alto  Co.,  of  the  same 
County  and  State,"  instead  of  "Palo  Alto  Co.,  formed  under 
the  laws  of  California,  with  its  office,  or  place,  or. principal 
place  of  business  at  Los  Angeles." 

These  suggestions,  possibly  only  mistakes  of  not  a  very 
serious  character  serve  to  show  lack  of  knowledge  and  skill 
in  preparation  of  corporate  papers. 


FORMS  391 

A  corporation  is  theoretical,  not  physical ;  it  is  invisible, 
not  visible;  it  is  intangible,  not  tangible;  it  has  no  residence 
like  a  natural  person,  except  its  office,  but  it  dwells  or  has  its 
domicile  where  the  law  creating  it  has  force,  or  within  that 
legal  jurisdiction  ;  it  transacts  business  where  its  offices  or  its 
agents  are;  it  does  not  act  in  and  of  itself,  but  only  by  and 
through  agents  who  represent  it  and  do  business  for  it.  It 
does  not  possess  any  of  the  five  senses  that  natural  persons 
have;  it  can  not  exercise  any  of  the  rights  of  suffrage;  nor 
does  it  have  any  right  of  sovereignty,  unless  specially  dele- 
gated to  it  by  legislative  enactment ;  yet  it  is  held  to  be  a 
person  in  law,  a  being  capable  of  doing  any  and  all  business 
that  a  natural  person  can.  Hence,  to  be  able  to  pass  this 
artificial  person  along  the  line  a  natural  person  travels  in 
business  and  adopt  it  into  the  forms  a  natural  person  uses 
or  to  invent  forms  where  none  exist,  requires  no  mean  amount 
of  thought  and  skill. 

Deeming  the  above  sufficient  apology  for  what  will  be 
said,  it  follows  that  a  corporation  can  not  have  "heirs,  exe- 
cutors, administrators,"  but  there  are  those  (its  stockholders 
or  creditors)  who  succeed  to  its  property  rights  by  different 
routes,  hence  it  is  proper  to  say  in  the  granting  clause  in  an 
instrument  given  by  a  corporation  or  natural  person  to  a  cor- 
poration, "its  successors.". 

It  disposes  of  its  property  by  sale,  transfer,  and  assign- 
ment on  the  same  lines  of  a  natural  person.  In  an  instrument 
it  is  proper  to  say  "its  assigns."  Hence,  a  paper  given  by  a 
corporation  or  a  natural  person  to  a  corporation,  it  is  proper 
to  say  thus:  "The  Manhattan  Bank,  its  successors  or  as- 
signs," and,  conversely,  if  a  corporation  receive  property  by 
such  a  transfer,  like  words  are  proper. 

If  an  instrument  is  given  by  a  corporation  as  one  of  the 
parties  or  by  a  corporation  to  a  corporation,  it  is  proper  to 
state  at  once  in  the  body  of  the  paper,  where  the  names  of 
individuals  and  their  address  would  occur,  the  name  of  the 
corporation,  thus:  "Manhattan  Bank,  a  corporation  duly  or- 


392  INDUSTRIAL     CORPORATIONS 

ganized,  and  existing  under  the  laws  of  New  York,  with  its 
place  (or  principal  place  of  business,  if  it  has  more  than  one) 
at  200  Broad  Street,  New  York  City." 

This  full  description  is  given  to  fix  and  identify  the  corpo- 
ration, the  same  as  John  Jones  of  the  City  and  County  of  San 
Francisco,  State  of  California,  is  used  to  describe  and  identify 
John  Jones  as  a  natural  person.  After  the  full  description  and 
identification  has  once  been  given  in  the  writing,  if  it  becomes 
necessary  to  thereafter  use  the  name  of  the  corporation,  no 
other  or  further  need  be  said  than  to  say,  "The  said  Manhat- 
tan Bank,"  or  any  abbreviation  clearly  designating  the  party 
intended. 

It  is  generally  only  necessary  to  say  "the  party  of  the  first 
part"  or  "the  party  of  the  second  part"  or  "first  party"  or 
"second  party,"  as  the  case  may  be,  just  the  same  as  such  a  ref- 
erence would  be  made  if  a  natural  person  were  transacting 
the  business. 

The  term  "legal  representative"  is  a  term  that  can  not  be 
properly  used  in  an  instrument  to  a  corporation  as  that  term 
means  ordinary  "executors  or  administrators,"  or  is  equiva- 
lent to  these  words. 

Black's  Law  Dictionary  700. 

To  say  in  a  deed  to  a  corporation,  "To  the  use  and  benefit 
of  The  American  Bank,  its  legal  representatives,  successors, 
or  assigns,"  would  be  improper  as  incorporations  have  not 
heirs,  executors,  or  administrators.  The  term  "legal  repre- 
sentative" is  not  a  certain  but  vacillating  term,  and  for  that 
reason  its  use  is  discouraged  in  corporate  instruments. 

It  may  be  used  to  designate  a  receiver,  but  that  is  very  re- 
mote and  hardly  contemplated. 

Parol  testimony  must  be  resorted  to,  to  ascertain  what 
meaning  was  intended.  First,  it  may  be  shown  to  mean  next 
of  kin. 

Duncan  vs.  Walker,  2  Dall  (U.  S.)  205 ;  Greenwood  vs. 
Holbrook,  42  Hun.  633,  on  appeal,  19  N.  Y.  367 ;  Halsey 
vs.  Paterson,  37  N.  J.  Eq.  448  Bacons ;  Benefit  Societies 
&  L.  Ins.  262,  Woerner  on  Administration,  p.  906. 


FORMS  393 

Second,  Successors  and  assigns. 

Hammond  vs.  Organ  Co.,  92  U.  S.  724;  Bank  vs.  Trim- 
ble, 40  Ohio  St.  629;  Warnecke  vs.  Lembca,  71  111.  91. 

Third,  A  receiver  of  an  insolvent  corporation. 

Barbour  vs.  Bank,  45  Ohio  St.  135  S.  C. ;  17  Am.  Eng. 
Corp.  Cases  134. 

Hence,  to  be  explicit  "legal  representatives"  should  not 
be  used. 

To  make  the  change  three  things  are  to  be  observed: — 

First,  The  name. 

Second,  Consideration  and  subject  matter. 

Third,  The  signature.  Outside  of  these  simply  copy  the 
form. 

1.  To  change  the  name  simply  insert  the  names  of  the 
parties  to  the  contract  you  are  drawing  instead  of  the  parties 
used  in  the  form* 

2.  Insert  the  consideration  and  matter  about  which  you 
are  contracting  "in  the  place  of  that  used  in  the  form. 

3.  The    corporate    signature    is   more    difficult.     The    sig- 
nature must  be  signed  by  some  one  having  authority  to  sign 
the  corporate  name.     The  chief  executive  officer,  usually  the 
president,  signs  the  corporate  name,  especially  to  important 
contracts. 

The  full  corporate  .signature  will  be  thus: — < 

Attest,  The  Leap  to  Light  Mining  Co., 

J.  Morgan  Smith,  By  Ralph  Wick, 

Secretary.  President. 

In  addition  to  the  above  full  signature,  which  is  sufficient 
upon  all  contracts  not  required  to  be  recorded  in  some  public 
office,  where  individuals  have  to  sign,  seal,  and  acknowledge 
before  the  contract  is  recordable,  the  corporate  seal  would 
have  to  be  put  on  or  affixed  as  a  further  signature  or  identity 
of  the  corporation. 

If  the  contract  would  have  to  be  acknowledged  by  an 
individual,  the  corporation  would  also  have  to  acknowledge 
its  contract  for  record,  all  of  which  will  be  found  hereafter 
among  the  forms* 


394  INDUSTRIAL     CORPORATIONS 

The  following  list  of  forms  in  so  far  as  they  pertain  to  cor- 
porations or  individuals,  each  and  all  of  which  may  be  used 
interchangeably,  will  be  found  to  cover  possibly  every  piece 
of  business  that  any  one  would  require  a  form  for  reference 
to  perform. 

In  drawing  any  contract  the  mere  formalities  are  not  as 
essential  as  the  substance  of  the  instrument.  Courts  always 
sacrifice  form  to  substance  where  it  becomes  necessary  that 
either  should  be  overthrown. 

INTRODUCTION  TO  CONTRACTS. 

§  267.     Forms  of  Contracts,  Multiplicity  of. 

The  forms  of  contracts  are  as  multiple  as  the  multiplicity 
of  business  transactions,  and  about  as  much  as  can  be  done 
is  to  give  a  skeleton  form  that  will  be  suggestive  of  the  line 
upon  which  contracts  have  been  made  and  leave  any  devia- 
ation  or  addition  to  be  placed  therein  as  the  contracting 
parties  may  deem  proper,  to  suit  their  purpose  or  interest.  In 
order  that  a  contract  may  be  complete,  six  things  should  hap- 
pen and  concur.  There  must  be:  (1)  A  person  to  contract; 
(2)  A  person  able  to  be  contracted  with ;  (3)  A  thing  to  be 
contracted  for;  (4)  A  lawful  consideration  ;  (5)  Clear  and  ex- 
plicit words  to  express  the  agreement,  and ;  (6)  the  assent  of 
the  contracting  parties. 

§  268.    The  Contract  Should  Contain: — 

1.  The  date  of  the  contract,  which  should  be  truly  stated. 

2.  The  names  of  the  parties  with  certainty,  and  in  addition 
thereto  for  the  purpose  of  further  distinction  and  certainty, 
the  designation   as   parties  of  the   first,  second,   third,  or  as 
many  parties  as  there  are  contracting  in  one  or  more  parts. 

3.  The  subject  matter,  which,  including  the  details,  time, 
place,  and  the  minor  details  to  be  performed. 

4.  The  covenants  on  each  part  for  their  respective  per- 
formance. 

5.  Signature,  the  parties  must  sign  the  contract  by  them- 
selves or  through  their  agents.    If  signed  by  an  agent,  it  will 


FORMS  395 

be  signed  thus:  John  Doe,  by  Richard  Roe,  Agent.  If 
signed  by  Power  of  Attorney,  thus:  John  Doe,  by  Richard 
Roe,  his  Attorney  in  fact. 

§  269.     Two  Kinds  of  Signatures  to  Corporate  Contracts. 

If  signed  by  the  Agent  of  a  corporation,  it  will  be  either 
the  Corporate  signature  or  the  official.  If  the  corporate  sig- 
nature, thus:  The  United  Verde  Copper  Co.,  by  W.  A.  Clark, 
President. 

If  the  official  signature,  it  will  appear  thus :  W.  A.  Clark, 
President. 

§  270.    A  Contract  May  Begin  With  Any  of  the  Following : — 

1.  We  agree:    That,  etc. 

2.  We  hereby  agree :    That,  etc. 

3.  It  is  hereby  agreed :    That,  etc. 

4.  This  agreement  witnesseth :    That,  etc. 

5.  Know  all  men  by  these  presents :    That,  etc. 

6.  This  agreement,  made  this   ....   day  of   ....,  between 
A.  B.  and  C.  D.,  witnesseth : 

7.  A.  B.,  of  ....  county,  farmer,  and  C.  D.,  of  ....  county, 
trader,  have  this  ....  day  of  . . .  .,  agreed  together  as  follows: 

8.  This   agreement    (or    contract    for   building,    etc.)     (or 
merchandise  or  work,  etc.)  entered  into  this  ....  day  of  .  . .  ., 
by  and  between  A.  B.,  of  .  . .  . ,  of  the  first  part,  and  C.  .D.,  of 
.  . .  .,  of  the  second  part,  witnesseth : 

9.  Articles   of   agreement   made   and   concluded    (or   had, 
made,  concluded,  and  agreed  upon)   this    ....    day  of    ...., 
between  A.  B.,  of  the  city  of  .  . . .,  merchant,  and  C.  D.,  of  the 
city  of  .  . .  .,  manufacturer. 

10.  Know  all  men  by  these  presents :    That  this  agreement 
(or  articles  of  agreement,  or  this  contract,  or  indenture)  had, 

made,   entered   into,   concluded   and   agreed   upon,   this    

day  of  . . .  .,  A.  B ,  witnesseth : 

11.  To  all  whom  these  presents  may  come  greeting  (or  to 
all  whom  it  may  concern)  :    Know  ye  that  this  agreement,  etc., 
between  the   ....,  a  corporation,  existing  under  the  laws  of 
the  State  of  . . . .,  of  the  first  part,  and  C.  D.,  E.  F.,  and  G.  H., 
a  company,  doing  business  under  the  firm  name  and  style  of 

the  C.  D Manufacturing  Company  of  . . . .,  of  the  second 

part,  witnesseth: 


396  INDUSTRIAL     CORPORATIONS 

§  271.     Contracts  May  Conclude  With  Any  of  the  Follow- 
ing:— 

1.  Signed   (and  sealed). 

2.  Signed,   sealed,   and   acknowledged. 

3.  Witness  our  hands  (and  seals). 

4.  Given  under  our  hands  (and  seals). 

5.  In  witness  whereof,  we  hereunto  set  our  hands,  etc. 

6.  In  witness  whereof,  the  parties  to  these  presents  have 
hereunto  set  their  hands,  etc. 

7.  In  witness   whereof,   we  have  hereunto   set  our  hands 
(and  affixed  our  seals)  (at  .  . .  .)  this  ....  day  of 

8.  In   witness  whereof,  we  have  hereunto   set  our  hands 
(or  subscribed  our  names)   the  day  and  year  first   (or  last) 
above  written. 

9.  In  witness  whereof,  A.  B.,  the  party  of  the  first  part, 
and  C.  D.,  the  party  of  the  second  part,  in  their  own  proper 
persons   have   hereunto    respectively   and    severally   set   their 
hands  and  seals,  this  ....  day  of  ....    (or  the  day  and  year 
first,  or  last)  above  written. 

§  272.     Form  of  Attesting  Witness  to  Contract. 

Where  the  law  requires  witnesses  to  a  contract  or  testi- 
monium  or  testatum  clause,  one  of  the  following  may  be 
used : — i 

1.  Test. 

2.  Attest. 

3.  In   witness. 

4.  Witnesses. 

5.  In  presence  of. 

6.  Executed   (and  delivered)   in  presence  of. 

7.  Signed  and  interchanged  in  presence  of. 

8.  Signed,  sealed,  and  delivered  in  presence  of. 

9.  Signed,  sealed,  and  acknowledged  in  presence  of. 

§  273.     Contracts  by  Agent  or  Attorney  in  Fact. 

If  A  signs  "A  for  B"  this  is  the  signature  of  A,  and  he  is 
the  contracting  party,  although  he  makes  the  contract  at  the 
instance  of  and  for  the  benefit  of  B.  But  if  he  signs  "B  by 
A1"  then  it  is  the  contract  of  B,  made  by  him  through  his 
instrument  A.  In  the  first  case  A  is  the  principal ;  in  the  sec- 
ond, B  is  the  principal  and  A  his  agent.  The  name  of  the 
principal  must  appear  as  such  in  the  signature  of  the  deed ; 


FORMS  397 

and  in  agreements,  the  words  must  be  sufficient  to  bear  that 
construction  of  the  signature.  Parol  evidence  may  always 
be  admitted  to  charge  an  unnamed  principal,  but  not  to  dis- 
charge an  actual  signer. 

This  agreement  made  this    ....    of   ....,  A.  D by 

and  between  A.  B.,  of  ....  county,  in  the  State  of  . . . .,  of 
the  first  part,  by  C.  D.,  his  attorney  in  fact,  and  E.  F.,  of  .... 
county,  in  the  State  of  .  . .  .,  of  the  second  part,  by  G.  H.,  his 
attorney  in  fact,  witnesseth: 

That  said  party  of  the  first  part,  etc. 

In  Witness  Whereof,  The  parties  have  hereunto  set  their 
hands  the  day  and  years  first  above  written. 

A.  B., 
By  E.  F.,  his  attorney  in  fact. 

C.  D., 
By  G.  H.,  his  attorney  in  fact. 

§  274.    Testimonium  Clause,  Sealed  Instruments. 

This  clause  to  sealed  instruments  or  to  any  instrument 
is  the  ending  phrase  or  clause  to  deeds  and  sealed  instruments. 

The  following  form  is  general  and  is  possibly  sufficient 
for  a  corporation  in  any  State : — 

In  Witness  Whereof,  Said  party  of  the  first  part  has 
caused  its  corporate  seal  to  be  affixed  by  its  Secretary,  and 
its  name  to  be  subscribed  hereto  by  its  President  (or  other 
corporate  officer,  as  the  case  may  be),  the  day  and  year 
aforesaid. 

(L.  S.)  (Corporate  signatures.) 

Attest :    Sec. 

A  short  form  sufficient  in  some  States  may  be  as  follows: — 

In  witness  whereof,  the  said  A.  B.  Company  has  caused 
these  presents  to  be  signed  by  its  president,  attested  by  its 
secretary,  and  its  corporate  seal  to  be  hereunto  affixed  this 
14th  day  of  March,  A.  D.,  1904. 

Signed,  sealed,  and  delivered  

in  the  presence  of  Company. 

By , 

President. 

Attest :     

(Seal  of  Corporation) 

Another  form  may  be  as  follows: — 


398  INDUSTRIAL     CORPORATIONS 

In  Witness  Whereof,  The  said  A.  B.  Company  has  caused 
its  corporate  name  to  be  hereto  subscribed  by  its  president, 
and  duly  attested  corporate  seal  to  be  hereunto  affixed  by  its 
secretary,  all  in  the  city  of  .  . .  .,  in  the  State  of  .  . .  .,  on  this 
14th  day  of  March,  A.  D.  1904. 

(Corporate  Seal)  A.  B.  Company. 

Attest  Seal :    Sam  Small,  By  D.  C.  Rollins, 

Secretary.  President 

§  275.     Special  Meeting  of  the  Stockholders. 

All  general  or  special  meetings  are  preceded  generally  by 
a  call  and  a  notice.  A  call  for  special  meetings  may  be  made 
by  all  or  some  of  the  stockholders  or  by  the  board  of  directors, 
directed  to  the  president  or  the  secretary  of  the  company  as 
the  by-laws  provide.  If  the  call  is  made  upon  the  president, 
the  president  will  in  turn  give  notice  to  the  secretary  and 
authorize  him  to  notify  the  different  stockholders  of  the  time, 
place,  and  purpose  of  the  meeting,  or  the  call  may  be  made  by 
the  directors  themselves,  or  some  of  the  directors.  In  either 
case  the  result  is  a  notice  will  be  finally  sent  out  to  each  stock- 
holder by  the  secretary.  The  regular  annual  meeting  of  the 
stockholders  will  be  provided  for  in  the  by-laws  and  all  the 
stockholders  will  be  presumed  to  have  notice  of  that,  still  it 
is  better  to  remind  them  by  a  timely  notice.  If  the  notice 
originates  with  the  directors,  it  may  be  as  follows : — 

FORM    32,    CALL    FOR    SPECIAL    MEETING   OF    STOCKHOLDERS. 

We,  the  undersigned,  directors  of  the  United  Verde  Cop- 
per Company,  do  hereby  call  a  special  meeting  of  the  stock- 
holders, to  be  held  in  the  office  of  the  company  at  Prescott, 
Ariz.,  on  the  10th  day  of  April,  1904,  at  10  A.  M.,  for  the 
purpose  of  considering  the  proposition  to  sell  the  entire  assets 
of  the  said  company,  and  the  transaction  of  such  other  busi- 
ness as  may  in  connection  therewith  be  desirable,  and  we 
hereby  authorize  and  instruct  the  secretary  of  the  company 
to  send  out  notice  of  said  special  meeting  in  accordance  with 
the  rules  of  the  company. 

Dated,  (Signed)     Mr.  A.,  Director. 

Prescott,  Ariz.,  Mr.  B.,  Director. 

March  1,  1904. 

Upon  receipt  of  the  above  notice  by  the  secretary  and  pur- 


FORMS  399 

suant  thereto,  the  secretary  must  notify  each  stockholder  of 
the  time,  place,  and  purpose  of  the  convening  of  the  stock- 
holders, and  his  notice  to  the  stockholders  may  be  in  the  fol- 
lowing form : — 

FORM  33,  SECRETARY'S  NOTICE  CALLING  MEETING  OF 

STOCKHOLDERS. 
To  Mr.  E.,  of  Chicago: — 

You  are  hereby  notified  that  a  special  meeting  of  the 
stockholders  of  the  United  Verde  Copper  Company  will  be 
held  in  the  office  of  the  company  at  Prescott,  Ariz.,  pursuant 
to  this  notice,  on  the  10th  day  of  April,  1904,  at  10  o'clock 
A.  M.,  for  the  purpose  of  considering  and  acting  upon  a 
proposition  to  sell  the  entire  assets  of  the  company  and  for 
the  transaction  of  any  and  all  business  necessary  and  desir- 
able or  pertaining  thereto. 

(By  order  of  the  stockholders  or  directors,  as  the  case 
may  be.) 

Prescott,  Ariz.,  Mr.  B.,  Secretary. 

March  5,  1904. 

It  sometimes  happens  that  the  by-laws  require  not  only 
that  the  stockholders  have  a  direct  notice  to  them,  by  the  sec- 
retary, but -that  a  notice  be  published  in  some  newspaper  pub- 
lished in  the  community,  country,  or  city  where  the  principal 
place  of  business  is  located. 

§  276.     Form    34,    Notice    of    Publication    of    Stockholders' 
Meeting. 

To  the  Stockholders  of  the  United  Verde  Copper  Co. : — 

You  and  each  of  you  will  please  take  notice  that  a  special 
meeting  of  the  stockholders  of  the  United  Verde  Copper  Co. 
will  be  held  at  the  office  of  the  company  at  Prescott,  Ariz.,  on 
the  10th  day  of  April,  1904,  at  10  o'clock  A.  M.,  to  consider  a 
proposition  for  the  sale  of  the  assets  of  the  company  and  for 
the  transaction  of  such  other  business  in  connection  there- 
with as  may  come  before  the  meeting. 

(By  order  of  the  stockholders  or  directors.) 

Mr.  B.,  Secretary. 

The  above  notice  may  be  varied  according  to  the  facts  as 
they  may  appear  where  the  business  is  to  be  transacted.  The 
notice  should  be  signed  always  by  the  secretary  and  show  at 
whose  order  the  notice  is  given 


INDUSTRIAL     CORPORATIONS 

§  276a.     Voting  by  Proxy. 

It  sometimes  happens  that  the  stockholders  of  a  corpora- 
tion are  not  able  to  attend  or  be  present  at  a  special  or  other 
meeting,  and  in  such  a  case  it  is  usual  that  they  appear  and 
vote  by  proxy.  It  is  proper  for  the  by-laws  to  provide  for 
voting  by  proxy. 

FORM   35,    COMMON    FORM    OF    PROXY   OR    POWER   OF   ATTORNEY. 

Know  All  Men  by  These  Presents :  That  I,  J.  A.,  do 
hereby  constitute  and  appoint  R.  M.  my  attorney  and  agent, 
for  me  and  in  my  name,  place,  and  stead  to  vote  as  my  proxy, 
at  a  special  meeting  of  the  stockholders  of  the  United  Verde 
Copper  Co.,  to  be  held  at  the  company's  office  in  Prescott, 
Ariz.,  on  the  10th  day  of  April,  1905,  called  to  consider  the 
proposition  of  selling  the  assets  of  the  company,  he  to  vote 
according  to  the  number  of  votes  I  should  be  entitled  to  cast 
respectively  if  I  were  personally  present. 

In  Witness  Whereof,  I  have  signed  the  above  proxitive. 

New  York,  N.  Y.,  Mr.  J.  A. 

March  10,  1905. 

The  above  form  of  proxy  is  only  a  direction  to,  or  form 
for,  those  who  see  proper  to  use  it.  It  may  vary  to  suit  the 
wish  'of  the  giver  of  the  proxy.  He  can  go  to  the  extent  to 
dictating  how  he  wishes  his  proxies  cast  on  any  and  all 
propositions  that  are  to  come  up  at  the  meeting,  and  also  to 
limit  his  proxy  to  the  meeting  in  the  notice. 

§  277.     Minutes  Special  Meeting  Stockholders. 

Assuming  now  that  the  stockholders  have  assembled  at  the 
time  and  place  given  in  the  notice  as  heretofore  set  out,  and 
that  they  are  all  represented  either  in  person  or  by  proxy, 
the  minutes  of  the  special  meeting  of  the  stockholders  may  be 
as  follows : — 

FORM    36,    SPECIAL    MEETING   OF    STOCKHOLDERS — MINUTES. 

Special  Meeting  of  the  United  Verde  Copper  Co.,  held 
April  10,  1904:— ^ 

Pursuant  to  formal  call  and  notice  of  the  stockholders  of 
the  United  Verde  Copper  Co.,  assembled  at  special  meeting 
in  the  office  of  the  company  at  Prescott,  Ariz.,  on  the  10th 
day  of  April,  1905,  meeting  was  called  to  order  by  the  presi- 


FORMS  401 

dent,  Mr.  A.,  the  secretary,  Mr.  B.,  officiating  as  recording 
officer.  The  entire  capital  stock  of  the  company  was  repre- 
sented at  the  meeting,  either  in  person  of  the  owner  or  by 
proxy.  The  stock  represented  by  the  person  of  the  owners 
was  as  follows: — 

Mr.  F.,  100;  Mr.  G.,  200;  Mr.  H.,  500;  Mr.  I.,  1,000  shares. 

The  following  stockholders,  being  the  owners  of  the  re- 
spective shares  set  opposite  their  names,  were  duly  repre- 
sented by  proxy  all  properly  filed  with  the  secretary : — 

Mr.  K.  by  Mr.  G.,  prox.  250;  Mr.  M.  by  Mr.  J.,  prox.  300; 
Mr.  N.  by  Mr.  J.,  prox.  500. 

On  the  request  of  the  president,  the  secretary  presented 
the  call  and  notice  pursuant  to  which  the  meeting  was  held. 

These  were  ordered  entered  upon  the  minutes  of  the  meet- 
ing, and  are  as  follows:  (Here  copy  notice  given.) 

STATING  PURPOSE  OF  CALL  MEETING. 

The  president  then  briefly  stated  the  purpose  of  the  meet- 
ing to  be  the  consideration  of  the  sale  of  the  entire  property 
of  the  United  Verde  Copper  Company,  including  all  the  ma- 
chinery, the  real  property  and  entire  holdings  of  the  com- 
pany, mines,  mills,  etc.  The  president  also  stated  that  there 
had  been  a  proposition  made  by  a  large  English  syndicate, 
of  whom  he  had  taken  steps  to  ascertain  their  financial  stand- 
ing, and  had  found  they  were  able  to  pay  the  price  they  were 
offering,  in  cash,  and  that  the  price  stated  in  their  offer  was 
$100,000,000. 

The  president  also  advised  that  the  proposition  of  the 
English  syndicate  be  accepted ;  that  the  possibilities  were  that 
it  would  take  a  long  series  of  years  to  ever  work  that  much 
money  out  of  the  mine,  and  by  the  time  that  amount  of  money 
could  be  netted,  and  the  interest  it  would  accumulate,  the 
mine  might  "pinch  out,"  and  for  that  reason  and  because  he 
believed  the  decline  in  copper  would  be  certain,  it  would  be 
advisable  to  the  interests  of  the  stockholders  to  sell  the  mine 
and  its  equipments. 

An  extended  discussion  arose  at  once,  participated  in  by 
all  the  stockholders,  as  to  the  value  of  the  property.  The 
investment  of  such  a  large  sum  of  money  was  advanced  by 
some  as  one  of  the  reasons  why  it  should  not  sell ;  that  possibly 
they  would  never  be  able  to  make  another  investment  that 
would  yield  as  great  an  income  as  the  investment  they  already 
had,  and  the  great  amount  of  labor  and  difficulty  it  would  take 
in  placing  as  much  money  as  that  where  it  would  bear  a  profit- 

27 


402  INDUSTRIAL     CORPORATIONS 

able  percentage  would  be  very  difficult,  at  least  no  investment 
could  be  found  that  would  yield  as  large  an  income  even  upon 
that  much  money  invested,  as  did  the  United  Verde  Copper 
Mine ;  while  others  took  the  view  that  this  amount  of  money 
would  be  amply  sufficient  or  more  money  than  they  could  ever 
make  use  of,  and  it  was  not  a  question  of  investment,  but  was 
a  question  whether  the  property,  as  an  investment,  was  worth 
the  $100,000,000. 

They  being  unable  to  agree  at  this  time,  and  the  meeting 
being  unsettled  as  to  what  it  would  determine  upon,  it  was 
moved  by  Mr.  M.  to  adjourn  until  10  o'clock  A.  M.  the  fol- 
lowing day,  in  order  to  give  the  stockholders  further  time  to 
consider  whether  they  would  accept  or  reject  the  proposition. 
Motion  was  duly  seconded  and  carried.  Meeting  was  de- 
clared adjourned  in  accordance  with  the  motion.  The  minutes 
were  signed  by  Mr.  B.,  secretary,  and  countersigned  by  Mr. 
A.,  president. 

§  278.    Form  37,  Adjourned  Meeting. 

Minutes  of  the  adjourned  meeting  of  the  stockholders  of 
the  United  Verde  Copper  Co.,  April  11,  1904. 

Pursuant  to  adjournment,  a  special  meeting  of  the  stock- 
holders of  the  United  Verde  Copper  Co.,  reassembled  in  the 
office  of  the  company  at  Prescott,  Ariz.,  the  llth  day  of  April, 
1904,  at  10  o'clock,  A.  M.  Meeting  was  called  to  order  by  the 
president,  Mr.  B.  officiating  as  recorder.  Stockholders  were 
all  present  except  those  represented  by  proxy  in  the  hands 
of  the  secretary.  The  minutes  of  the  special  meeting  of,  the 
stockholders  held  on  the  preceding  day,  and  from  which  the 
present  meeting  was  adjourned,  were  read  for  the  information 
of  those  present.  After  the  reading  of  the  minutes,  the  presi- 
dent announced  that  if  there  was  no  objection  to  the  minutes, 
they  would  stand  approved.  There  being  no  objection,  the 
minutes  were  ordered  approved.  Whereupon  a  discussion  of 
the  sale  of  the  United  Verde  Co.,  and  all  equipments  was 
again  entered  upon  by  the  various  stockholders.  After  some 
discussion,  Mr.  M.  offered  the  following  resolution : — 

RESOLUTION  ACCEPTING  PRICE  OF  PROPERTY. 

Whereas,  A  certain  proposition  has  been  made  to  the 
stockholders  of  this  company  for  the  purchase  of  the  United 
Verde  Copper  Co.  by  an  English  syndicate ; 

Whereas,  $100,000,000  has  been  offered  for  the  entire  prop- 
erties, mines,  reduction  works,  machinery,  etc.,  of  the  said 
company ;  now  therefore, 


FORMS  403 

Be  it  resolved  that  the  stockholders  of  this  company  hereby 
instruct  and  authorize  the  directors  of  the  company  to  accept 
the  $100,000,000  in  full  payment  for  the  property  of 'the  United 
Verde  Copper  Co.,  and  to  enter  into  such  contracts  as  will 
protect  the  said  company  upon  their  part  and  to  instruct  the 
president  of  the  United  Verde  Copper  Co.  to  execute  such 
deed  or  deeds  and  to  deliver  the  same  to  the  English  syndicate, 
upon  the  payment  by  the  English  syndicate  to  the  board  of 
directors  of  the  price  offered  by  the  said  syndicate  in  its 
proposition  to  the  stockholders  of  this  company. 

The  resolution  as  read  was  seconded,  and  after  a  short  dis- 
cussion participated  in  by  the  various  stockholders,  a  vote 
was  taken,  which  showed  that  the  resolution  was  adopted 
by  the  unanimous  vote  of  the  stockholders. 

There  being  no  further  business  before  the  meeting,  it 
adjourned  sine  die. 

Mr.  A.,  President.  Mr.  B.,  Secretary. 

§  279.    Directors'  Special  Adjourned  Meeting. 

No  notice  is  necessary  for  a  special  adjourned  meeting,  un- 
less the  special  meeting  was  deferred  to  a  time  greatly  removed 
from)  the  date  of  adjournment,  and  in  such  case  it  would  be  al- 
ways proper  for  the  secretary  to  re-notice  the  stockholders. 
The  directors,  usually  living  in  a  close  proximity,  may  be  as- 
sembled upon  a  call  and  waiver,  if  it  is  required  by  the  by-laws 
or  by  resolution  duly  spread  upon  the  minutes  that  the  di- 
rectors meet  at  certain  specified  times,  then  it  will  possibly 
never  be  necessary  for  a  special  directors'  meeting  to  be  called, 
or  if  it  should  happen  that  it  was  necessary  to  call  a  special 
directors'  meeting,  it  may  be  done  in  the  following  form : — 

FORM   38,   NOTICE  OF   MEETING DIRECTORS. 

To  Mr.  A., 

Prescott,  Ariz. 

You  are  hereby  notified  that  a  meeting  of  the  directors  of 
the  Bashford  Grocery  Co.  will  be  held  at  the  office  of  the 
company  in  the  city  of  Prescott,  on  the  1st  day  of  June,  1904, 
at  3  o'clock,  P.  M.,  to  consider  the  purchase  of  the  fall  supply 
of  flour. 

Chicago  111.,  Mr.  B.,  Secretary. 

April  1,  A.  D.  1904. 


404  INDUSTRIAL     CORPORATIONS 

Upon  assembling  of  the  directors  of  the  special  meeting, 
in  order  to  keep  a  proper  record  of  the  meeting,  the  directors 
can  sign  a  paper  designated  as  a  "call  and  waiver,"  which  may 
be  in  the  following  form  : — 

FORM  39,   CALL  AND  WAIVER. 

We,  the  undersigned,  being  all  the  directors  of  the  Bash- 
ford  Grocery  Co.,  of  the  city  of  Prescott,  Ariz.,  hereby  call  a 
special  meeting  of  the  board  of  directors,  the  said  meeting 
to  be  held  at  the  company's  office  in  Prescott,  on  the  1st  day 
of  June,  1904,  at  3  o'clock  P.  M.,  to  consider  the  purchase  of 
the  fall  supply  of  flour  for  the  company  and  to  transact  any 
other  business  in  connection  therewith,  and  we  hereby  waive 
all  statutory  and  by-law  requirements  as  to  time,  place,  and 
purpose  of  the  said  meeting  and  consent  to  the  transaction 
thereat  of  any  and  all  business  pertaining  to  the  affairs  of  the 
company. 
J.  B.  Roach,  R.  G.  Ames,  John  Bashford,  J.  G.  Burmester. 

FORM    4Qt    MINUTES    OF    SPECIAL    DIRECTORS'    MEETING. 

Special  meeting  of  the  Bashford  Grocery  Co.,  held  June 
1,  1904. 

The  board  of  directors  of  the  Bashford  Grocery  Co.  assem- 
bled pursuant  to  call  and  waiver  of  notice  of  special  meeting  in 
the  office  of  the  company  at  Prescott,  Ariz.,  on  June  1,  1904. 
Meeting  was  called  to  order  by  the  president,  Mr.  Bashford, 
with  Mr.  Roach  acting  as  secretary.  All  the  members  of  the 
board  were  present  and  participated  in  the  meeting.  The 
secretary  presented  call  and  waiver  duly  signed  by  all  the 
members  of  the  board,  pursuant  to  which  the  meeting  was 
held.  There  being  no  objection  thereto,  the  president  ordered 
that  the  call  and  waiver  as  signed  be  spread  upon  the  minutes. 
(Here  the  secretary  may  spread  out  the  call  and  waiver  in 
accordance  with  the  form  above  set  forth.) 

The  president  then  stated  that  Mr.  John  Burmester, 
treasurer  of  the  company  for  nearly  twenty  years  last  past, 
had  unexpectedly  determined  to  embark  for  himself  in  busi- 
ness in  the  city  of  San  Francisco,  and  that  would  necessitate 
his  leaving  the  city  permanently,  and  that  he  had  handed  in 
his  resignation.  On  request  of  the  president,  the  secretary 
read  the  resignation  of  Mr.  Burmester. 


FORMS  405 

FORM   41,   RESIGNATION   OF   TREASURER. 

Prescott,  Ariz.,  March  10,  1904. 
To  the  Board  of  Directors  of  the  Bashford  Grocery  Co. 

Gentlemen :  I  have  concluded  to  enter  into  business  upon 
my  own  account  in  the  city  of  San  Francisco.  This  will  neces- 
sitate my  permanently  leaving-  the  city  of  Prescott.  I  regret 
very  much  to  say  that  this  action  will  compel  me  to  resign  my 
position  as  treasurer  of  your  company,  and  I  tender  this  my 
resignation  and  hope  that  you  will  act  on  it  promptly,  and 
appoint  a  committee  to  audit  my  accounts  and  to  take  over 
receipt  for  the  moneys  and  other  property  of  the  company 
now  mentioned  in  my  hands. 

Regretting  the  unavoidable  termination  of  my  very  pleas- 
ant relation  with  the  company,  I  remain, 

Yours  very  truly, 

J.  G.  Burmester. 

On  motion  of  Mr.  Roach,  duly  seconded  and  carried  by 
unanimous  vote  of  the  board,  Mr.  Burmester's  resignation  as 
treasurer  was  duly  accepted  and  the  thanks  of  the  board  were 
tendered  to  him  for  the  efficient  manner  in  which  he  had  dis- 
charged the  duties  of  his  office.  After  some  informal  discus- 
sion among  the  directors,  Mr.  Roach  was  nominated,  he  being 
the  assistant  treasurer  of  the  company,  for  the  position  of  the 
treasurer. 

The  nomination  was  duly  seconded,  and  there  being  no 
other  nomination  to  the  office,  Mr.  Roach  was  unanimously 
elected  treasurer  of  the  company. 

Upon  motion  duly  made  and  seconded  and  passed,  a  com- 
mittee of  two  were  appointed  to  make  such  audit  of  the  former 
treasurer's  accounts  as  seemed  to  them  expedient,  and  to  re- 
ceipt for  the  moneys  and  property  and  to  turn  them  over  to 
Mr.  Roach,  his  successor. 

There  being  no  further  business  before  the  meeting,  it  was 
upon  motion  adjourned  sine  die. 

Mr.  Bashford,  President.  Mr.  Roach,  Secretary. 

§  280.     Transfer  or  Exchange  of  Property  for  Corporation 
Stock. 

It  may  possibly  happen  that  incorporators  may  not  just 
understand  how  to  proceed  in  the  exchange  of  property  upon 
which  the  company  is  expected  to  operate  for  the  company 
stock,  so  that  the  stock  may,  when  issued,  be  fully  paid  for, 
and  as  is  generally  understood,  to  be  thereafter  non-assessable, 


406  INDUSTRIAL     CORPORATIONS 

as  that  is  the  character  of  the  stock  now  generally  issued  by 
corporations,  unless  statutes  or  it  is  otherwise  provided. 

The  most  common  plan  resorted  to  to  pay  up  stock  is  for 
the  owner  or  owners  of  the  property  in  which  the  company  is 
expected  to  operate,  to  make  a  written  proposition  to  the  cor- 
poration and  file  it  with  the  company,  offering  to  trade,  sell, 
or  exchange  to  the  company  such  and  such  property,  describ- 
ing it,  for  the  entire  issue  of  its  capital  stock.  The  company 
will  then  act  upon  the  proposition  made,  and  usually  the  stock- 
holders, if  they  accept  the  proposition,  will  order  by  a  reso- 
lution on  the  minutes  the  board  of  directors  to  negotiate  and 
authorize  the  president  to  enter  into  the  contract  with  the 
owners  of  the  property  and  to  accept  the  offer  and  complete 
the  papers,  and  when  the  papers  are  completed,  then  the  stock 
may  be  issued  upon  the  acceptance  of  the  papers  by  the  party 
who  makes  the  proposition  and  the  secretary  authorized  to 
issue  the  stock  and  deliver  it  to  the  purchaser  or  his  order. 

Again,  if  the  stock  is  to  be  paid  for  in  cash,  the  usual  way 
is  to  call  upon  the  subscribers  or  the  intended  stockholders  for 
the  cash  at  a  stated  time,  that  is,  the  stockholders  will  order 
by  resolution  that  the  directors  assess  the  subscribers  for  the 
full  amount  paid  in,  at  once  or  in  thirty  days  or  in  such  time 
as  may  be  proper,  or  they  may  order  a  portion  of  it  to  be  paid 
in,  and  this  will  enable  the  corporation  to  have  in  its  treasury 
whatever  has  been  subscribed  or  a  portion  thereof  in  cash,  and 
the  company  will  have  exchanged  for  its  cash  its  stock,  either 
in  full  or  in  such  quantities  as  has  been  subscribed. 

Now  having  the  cash  on  hand,  if  the  corporation  is  not  a 
banking  concern,  it  will  proceed  to  purchase  whatever  prop- 
erty it  is  going  to  deal  in,  and  to  that  end,  the  stockholders 
will  order  the  directors  to  empower  the  president  to  negotiate 
for  certain  properties  they  wish  to  buy.  The  president  will 
follow  directions  and  report  back  his  progress  to  the  directors, 
and  if  the  negotiations  are  satisfactory,  the  stockholders  will 
order  the  directors  to  instruct  the  president  to  complete  the 
deal,  draw  his  check  for  the  money,  and  when  the  deeds  or 


FORMS  407 

other  papers  are  satisfactory  to  the  counsel  of  the  company, 
deliver  the  check  and  receive  the  deeds  or  other  title  papers 
for  the  company.  If  now  there  is  not  sufficient  working 
capital,  the  directors  may  borrow  such  a  sum  as  they  need  to 
carry  on  the  business  engaged  in. 

Again,  the  corporation  can  get  control  of  another  corpora- 
tion by  the  purchase  of  its  capital  stock,  and  in  that  case,  the 
terms  agreed  upon  would  depend  upon  how  the  contract  was 
made.  The  purchasing  corporation  may  pay  for  the  stock  of 
the  selling  corporation  by  part  cash  and  part  stock  payment, 
or  it  might  pay  all  in  the  stock  or  all  in  cash,  and  in  either 
case,  the  minutes  should  show  just  what  was  done  and  how 
it  was  done. 

These  transactions  are  usually  done  by  written  offers  and 
by  written  acceptances  of  such  offers,  and  in  either  case  the 
secretary  has  little  else  to  do  than  to  copy  these  papers  in  the 
minutes  and  file  them  in  the  files  of  the  company. 

That  it  is  suggested  that  these  transactions  are  carried  on 
in  writing  does  not  preclude  that  they  be  carried  on  verbally, 
except  such  title  papers  as  are  essential  to  complete  the  trans- 
fers of  the  title  to  the  property,  and  in  small  corporations 
many  of  the  formalities  may  be  and  usually  are  dispensed  with, 
and  nothing  more  shows  upon  the  minutes  than  the  trans- 
action exchanging  the  title  papers  and  that  the  business  was 
transacted.  Generally  deals  between  parties  of  this  kind  are 
talked  up  beforehand,  and  the  written  propositions  made  are 
but  a  formal  ending  of  what  has  already  been  agreed  upon 
verbally,  for  the  purpose  of  reducing  the  dealings  to  writing, 
and  placing  them  upon  record. 

§  281.     Annual  Stockholders'  Meeting. 

The  annual  stockholders'  meeting  is  an  important  factor 
in  the  corporate  machinery,  and  it  is  not  pressing  the  matter 
too  close  to  state  that  the  records  of  this  meeting  should  be 
very  carefully  kept,  although  from  a  legal  standpoint  these 
records  might  not  be  absolutely  necessary  to  be  reduced  to 
writing,  as  in  the  absence  of  the  charter  or  by-law  requirement 


408  INDUSTRIAL     CORPORATIONS 

resolutions  of  the  stockholders'  meetings  need  not  be  recorded 
in  the  corporation  books,  and  should  it  ever  become  necessary 
to  prove  the  action  of  stockholders,  it  may  be  proved  by  parol 
evidence,  but  it  is  always  better  to  keep  a  strict  account  of 
these  doings  and  business,  as  by  any  neglect  of  duty  on  the 
part  of  the  company's  officials,  confusion  may  occur,  hence 
it  is  always  better  to  keep  a  careful  record  and  close  minute 
of  every  proceeding  that  is  transacted  at  the  stockholders'  and 
directors'  meetings. 

FORM  42,  STOCKHOLDERS'  ANNUAL  MEETING. 

Minutes  of  annual  meeting  of  the  Leap  to  Light  Mining 
Company,  held  March  1,  1905. 

The  stockholders  of  the  Leap  to  Light  Mining  Co.  met  in 
annual  session  at  one  of  the  offices  of  the  company  in  New 
York  City,  at  10  A.  M.,  March  1,  1905.  The  president  and  sec- 
retary of  the  company  took  charge  of  the  meeting.  The  presi- 
dent ordered  call  of  the  roll  by  the  secretary,  which  roll  call 
showed  that  out  of  100,000  shares  of  stock,  there  were  present 
75,000,  represented  in  person  or  by  proxy,  which  constituted 
a  quorum.  After  this  the  meeting  was  declared  ready  for 
business. 

The  secretary  submitted  a  copy  of  the  notice  of  the  meet- 
ing with  his  certificate  thereto  attached,  certifying  that  copies 
had  been  duly  served  on  every  stockholder  of  record  on  or  be- 
fore the  1st  day  of  February,  1905,  and  that  he  had  published 
the  same  in  a  newspaper  published  in  the  city  of  New  York, 
known  as  the  New  York  Sun,  two  successive  publications  more 
than  ten  days  prior  to  the  date  of  the  meeting. 

There  was  no  objection  made  to  the  notice  as  given  by  the 
secretary,  and  the  same  was  ordered  received  and  filed. 

The  minutes  of  the  preceding  annual  meeting  were  then 
read  and  approved. 

The  minutes  of  the  special  meetings  of  the  stockholders, 
held  respectively  March,  August,  and  October,  1904,  were  read 
and  approved. 

The  annual  report  of  the  president,  Mr.  Mark  Anthony,  was 
read  and  submitted.  There  being  no  objection  thereto,  the 
same  was  received  and  filed  with  the  secretary. 

The  report  of  the  treasurer  was  also  read.  There  being  no 
objection  thereto,  the  same  was  ordered  received  and  filed  by 
the  secretary. 


FORMS  409 

The  report  of  the  committee  on  the  by-laws  followed,  which 
was  also  read,  ordered  received,  and  filed. 

The  election  of  directors  being  next  in  order  for  the  corning 
year,  the  president  appointed  Mr.  J.  C.  Calhoun  as  inspector 
of  the  election.  Nominations  followed,  and  Mr.  Anthony,  Mr. 
Booth,  and  Mr.  Dunn  were  nominated  to  act  as  directors  for 
the  ensuing  year.  The  election  proceeded  by  ballot,  and  at  its 
conclusion  the  inspector  made  his  formal  report,  announcing 
and  certifying  to  the  election  of  the  following  gentlemen  as 
directors  of  the  company  for  the  ensuing  year: — 

Mr.  Mark  Anthony,  director;  Mr.  Amos  Booth,  director; 
Mr.  R.  B.  Dunn,  director. 

The  report  of  the  inspector  was  ordered  filed  with  the 
secretary  by  the  president. 

The  recommendation  of  the  committee  on  by-laws  was 
then  taken  up  for  discussion.  A  stormy  debate  ensued.  A 
number  of  motions  were  made  regarding  by-laws  and  were 
lost.  It  became  apparent  from  the  temper  of  the  meeting  that 
nothing  could  be  done  in  that  regard,  whereupon  Mr.  Emerald 
moved  to  adjourn  to  March  5,  1905.  Motion  was  carried. 

Mark  Anthony,  President.  Amos  Booth,  Secretary. 

§  282.     Formation  of  a  Corporation. 

The  formation  of  a  corporation  rests  in  the  law  of  the 
State  where  the  corporation  is  to  be  formed.  The  terms 
"charter,"  "certificate  of  incorporation,"  or  "articles  of  incor- 
poration," are  words  that  may  be  used  and  are  used  to  a  great 
extent  in  general  acceptation  as  terms  interchangeable.  (We 
consider  the  term  "Articles  of  Incorporation"  the  better  ex- 
pression, and  as  signifying  more  accurately  what  was,  or  is 
actually  meant  under  general  incorporation  laws.  They  do 
not,  however,  mean  strictly  the  same,  as  "charter"  signifies 
more  certainly  the  creation  of  a  corporation  by  a  special  act 
of  a  legislative  body,  while  the  "certificate  of  incorporation," 
or  "Articles  of  Incorporation,"  are  more  properly  a  reference 
to  the  paper  agreement  or  contract  between  the  individuals 
and  the  State  under  the  general  corporation  laws.') 

There  is  possibly  no  difference  in  the  terms  respecting  a 
charter  that  has  heretofore  been  used,  except  that  a  certificate 
of  incorporation  or  "Articles  of  Incorporation"  are  terms  more 


410  INDUSTRIAL     CORPORATIONS 

up-to-date  than  the  word  "charter."  There  seems  to  be  a  pre- 
vailing understanding  at  large  that  the  word  "charter"  is  used 
to  designate  some  specific  right  that  usually  accompanies  Ar- 
ticles of  Incorporation  granted  by  the  State.  This,  however, 
is  not  true,  as  where  Articles  of  Incorporation  are  taken  out 
under  general  laws,  the  articles  themselves  cover  every  pos- 
sible necessity  for  a  right  to  do  business,  and  no  charter  or 
other  paper  is  ever  granted  by  the  States.  None  is  necessary. 

ARTICLES   OF   INCORPORATION. 

The  Articles  of  Incorporation,  when  complete,  constitute 
a  contract  between  the  incorporators  as  individuals,  and  the 
State  as  a  sovereign  power.  Some  forms  will  be  here  given 
to  assist  those  who  desire  to  incorporate.  The  first  form  will 
be  an  approved  form  for  the  Territory  of  Arizona,  as  the  law 
now  stands. 

FORM    43,   ARIZONA   FORM    OF   ARTICLES   OF   INCORPORATION. 


ARTICLES  OF  INCORPORATION   OF  THE  BARODA  DIAMOND  COMPANY. 

Know  All  Men  by  These  Presents:  That  we,  the  under- 
signed, have  this  day  associated  ourselves  together  for  the  pur- 
pose of  forming  a  corporation  under  the  laws  of  Arizona,  and 
for  that  purpose  do  adopt  the  following  charter: — 

ARTICLE  I. 

The  name  of  this  corporation  shall  be  Baroda  Diamond 
Company  of  Des  Moines,  Iowa. 

ARTICLE  II. 

This  company  shall  keep  an  office  at  Phoenix,  Arizona,  and 
may  keep  other  principal  offices  and  places  of  business  at 
Des  Moines,  State  of  Iowa,  and  at  such  other  places  as  the 
board  of  directors  may  establish  at  which  place  or  places  all 
incorporators',  stockholders',  and  directors'  meetings  may  be 
held,  and  all  corporate  business  may  be  transacted. 

ARTICLE   III. 

The  amount  of  the  capital  stock  of  this  corporation  shall 
be  100,000  dollars,  divided  into  10,000  shares  of  the  par 
value  of  $10  each,  and  said  capital  stock  shall  be  paid  up  at 
the  date  of  the  issuance  or  at  such  time  as  the  board  of  di- 


FORMS  411 

rectors  may  designate,  in  money,  property,  labor,  or  any  other 
valuable  right  or  thing,  and  the  judgment  of  the  board  of  di- 
rectors or  managing  officers  as  to  the  value  thereof  shall 
be  conclusive. 

ARTICLE   IV. 

The  general  nature  of  the  business  in  which"  this  corpo- 
ration shall  engage  is  as  follows,  to  wit:  The  manufacture 
and  sale  of  Baroda  Diamonds,  and  also  (whatever  the  char- 
acter of  business  the  company  desires  to  engage  in  may  be 
inserted  here)  engaging  in  any  and  all  kinds  of  business  that 
a  natural  person  might  or  could  in  the  United  States  or  any 
part  of  the  world. 

ARTICLE  v. 

The  affairs  of  this  corporation  shall  be  conducted  by  a 
board  of  directors,  who  shall  be  elected  on  the  10th  day  of 
January  of  each  year  as  the  by-laws  shall  provide. 

ARTICLE   VI. 

The  highest  amount  of  liability  that  this  corporation  shall 
subject  itself  to  at  any  one  time  shall  not  exceed  25,000  dollars. 

ARTICLE   VII. 

This  corporation  is  formed  to  endure  for  twenty-five  years 
after  its  articles  are  duly  executed,  but  its  charter  rights  may 
be  renewed  (before  the  charter  expires),  from  time  to 
time,  for  periods  not  exceeding  twenty-five  years  at  a  time  per- 
petually. 

ARTICLE   VIII. 

The  private  property  of  the  stockholders  of  this  corpora- 
tion shall  be  and  is  hereby  made  forever  exempt  from  all  lia- 
bility for  its  debts  or  obligations. 

ARTICLE   IX. 

The  capital  stock  of  this  corporation  shall  be  and  is  hereby 
made  forever  non-assessable  by  this  corporation  for  any  pur- 
pose. 

In  Witness  Whereof,  We  have  hereunto  set  our  hands  and 
seals,  this  5th  day  of  March,  1904. 

Sampson  Pepper,     (SEAL). 
Frank  Wood,  (SEAL). 

Theodore  Perry,      (SEAL). 

(For  form  of  acknowledgment  see  title  acknowledg- 
ments, form  of.) 


412  INDUSTRIAL    CORPORATIONS 

FORM  44,  NEW  JERSEY'S  FORM  OF  INCORPORATION. 

In  New  Jersey  the  Articles  of  Incorporation  are  called  a 
"certificate  of  incorporation."  The  following-  is  a  form  that 
may  be  used  under  New  Jersey  law. 

CERTIFICATE    OF    INCORPORATION    OF   THE    COLORADO    CATTLE    CO. 

This  is  to  certify  that  we  do  hereby  associate  ourselves  into 
a  corporation  under  and  by  virtue  of  the  provisions  of  an  act 
of  the  Legislature  of  the  State  of  New  Jersey,  entitled,  "An 
Act  Concerning  Corporation,"  and  several  supplements  thereto 
and  acts  amendatory  thereof,  and  do  severally  agree  to  take 
the  number  of  shares  of  capital  stock  set  opposite  our  re- 
spective names. 

First,  The  name  of  the  corporation  is  Colorado  Cattle 
Company. 

Second,  The  location  of  the  principal  office  in  this  State  is 
at  No.  200  Lew  Street,  in  the  city  of  Trenton,  county  of  Tren- 
ton, N.  J.  The  name  of  the  agent  therein  and  in  charge  thereof 
upon  whom  process  of  this  corporation  may  be  served,  is  Ren 
Lenard. 

Third,  The  objects  for  which  this  corporation  is  formed  are 
(Here  state  the  specific  objects  in  which  the  corporation  is  to 
engage,  and  if  it  is  desirable,  or  the  parties  think  the  corpora- 
tion is  liable  to  desire  to  expand,  then  some  general  clause  may 
be  added  as  the  foundation  for  such  expansion).  The  corpo- 
ration shall  also  have  power  to  conduct  its  business,  in  all  its 
branches,  have  one  or  more  offices,  and  unlimitedly  to  hold, 
purchase,  mortgage,  and  convey  real  and  personal  property 
in  any  State,  Territory,  or  colony  of  the  United  States  and  in 
any  foreign  country  or  place. 

Fourth,  The  total  authorized  capital  stock  of  this  corpo- 
ration is  $50,000,  divided  into  10,000  shares,  of  the  par  value 
of  $5.00  each.  (Should  the  company  desire  to  issue  preferred 
stock  and  common  stock,  the  following  clause  may  be  in- 
serted : — ) 

(From  time  to  time  the  preferred  stock  and  common  stock 
shall  be  issued  in  such  amounts  and  proportions  as  shall  be 
determined  by  the  board  of  directors  and  as  may  be  per- 
mitted by  law.) 

(The  preferred  stock  shall  be  entitled  out  of  any  and  all 
surplus  net  profits  whenever  declared  by  the  board  of  di- 
rectors, to  non-cumulative  dividends  at  the  rate  of,  or  not  ex- 
ceeding eight  per  cent  per  annum  for  the  fiscal  year,  beginning 


FORMS  413 

on  the  first  day  of  January,  and  for  each  and  every  fiscal  year 
thereafter,  payable  in  preference  and  priority  to  any  pay- 
ment of  any  dividend  on  the  net  stock  for  such  fiscal  year. 
In  addition  thereto,  in  the  event  of  the  dissolution  of  the  cor- 
poration, the  holders  of  the  preferred  stock  shall  be  entitled 
to  receive  the  par  value  of  their  preferred  shares  out  of  the 
surplus  funds  of  the  corporation  before  anything  shall  be  paid 
therefrom  to  the  holders  of  the  common  stock.  The  common 
stock  shall  be  subject  to  the  prior  rights  of  the  holders  of  the 
preferred  stock  as  herein  declared.) 

(If  after  providing  for  the  payment  of  full  dividends  for 
any  fiscal  year  on  the  preferred  stock,  there  shall  remain  any 
surplus  net  profits  of  such  year,  any  and  all  such  surplus  net 
profits  of  such  year  and  of  any  other  fiscal  year  from  which  full 
dividends  shall  have  been  paid  on  the  preferred  stock  shall  be 
applicable  to  dividends  upon  the  common  stock,  when,  and  as 
from  time  to  time  the  same  shall  be  declared  by  the  board  of 
directors,  and  out  of  any  such  surplus  net  profits  upon  the 
common  stock  of  the  corporation  for  such  fiscal  year,  but  not 
until  after  the  dividends  upon  the  preferred  stock  for  such 
fiscal  year  shall  have  been  actually  paid  or  provided  for  and 
set  apart.) 

Fifth,  The  names  and  post-office  addresses  of  the  incorpo- 
rators  and  the  number  of  shares  subscribed  for  by  each,  the 
aggregate  of  which,  $50,000  is  the  amount  of  capital  stock  with 
which  this  company  will  commence  business,  are  as  follows: — 

Name.  Post-office  Address.        Number  of  Shares. 

John  Gorman,        New  York  City,  N.  Y.  25,000 

Eli  Seely,  Denver,  Colo.  25,000 

Sixth,  The  period  of  the  existence  of  this  corporation  is 
twenty-five  years.  (There  is  no  limit  to  the  .operation  of  a 
corporation,  and  it  may  be  stated  at  any  time  or  length  of  time, 
or  to  be  perpetual.) 

Seventh,  The  corporation  may  use  and  apply  its  surplus 
earnings  and  accumulated  profits  authorized  by  law  to  be  re- 
served to  the  purchase  or  acquisition  of  property,  etc.  The 
corporation  in  its  by-laws  may  prescribe  the  number  necessary 
to  constitute  a  quorum  of  the  board  of  directors,  which  num- 
ber may  be  less  than  the  majority  of  the  whole  number.  The 
number  of  directors  at  any  time  may  be  increased  by  a  vote 
of  the  board  of  directors.  The  board  of  directors  shall  have 
power,  without  the  assent  of  the  board  of  stockholders,  to 
make,  alter,  amend,  and  rescind  the  by-laws,  fix  the  amount 


414  INDUSTRIAL     CORPORATIONS 

to  be  reserved  as  working  capital,  and  authorize  and  cause 
to  be  executed  mortgages,  etc.  (adding  such  provisions  as  may 
be  desired.) 

In  Witness  Whereof,  We  have  hereunto  set  our  hands  and 
seals  the  1st  day  of  January,  A.  D.  1904. 

Signed,  Sealed  and  De-  (Signature  and  Seals.) 

livered  in  the  presence  of, 

ACKNOWLEDGMENT. 

State  of  New  Jersey       ) 

County is: 

Be  it  remembered  that  on  this  ....  day  of  .  . .  .,  190. 
before  me,.  . .  .,  personally  appeared ,  who  I  am  satis- 
fied are  the  persons  named  in  and  who  executed  the  foregoing 
certificate,  and  I,  having  first  made  known  to  them  the  con- 
tents thereof,  they  each  acknowledged  that  they  signed,  sealed, 
and  delivered  the  same  as  their  voluntary  act  and  deed. 

(Signature  and  title  of  the  officer.) 

§  283.    By-law. 

By-laws  of  a  corporation  are  the  rules  or  laws  made  by  the 
corporation  for  the  government  of  the  stockholders,  directors, 
and  all  other  officers  and  agents  of  the  company. 

Short  form  of  by-laws  under  the  laws  of  New  York: — 

FORM  45,  BY-LAWS  CEDAR  FALLS  COAL  COMPANY 

Stock. 
ARTICLE  I. 

1.  Certificate  of  stock  shall  be  issued  in  numerical  order 
from  the  stock  certificate  book,  be  signed  by  the  president  and 
treasurer,  and  sealed  by  the  secretary  with  the  corporate  seal. 
A  record  of  each  certificate  issued  shall  be  kept  on  the  stub 
thereof. 

2.  Transfers  of  stock  shall  be  made  only  upon  the  books  of 
the  company  and  before  a  new  certificate  is  issued ;  the  old 
certificate  must  be  surrendered  for  cancellation.     The  stock- 
books  of  the  company  shall  be  closed  for  transfers  twenty  days 
before  general  elections  and  ten  days  before  dividend  days. 

3.  The  treasury  stock  of  the  company  shall  consist  of  such 
issued  and  outstanding  stock  of  the  company  as  may  be  do- 
nated to  the  company  or  otherwise  acquired,  and  shall  be  held 


FORMS  415 

subject  to  disposal  by  the  board  of  directors.  Such  stock  shall 
neither  vote  nor  participate  in  dividends  while  held  by  the 
company. 

Stockholders. 

ARTICLE   II. 

1.  The  annual  meeting  of  the  stockholders  of  this  company 
shall  be  held  in  the  principal  office  of  the  company  in  New 
York  City,  on  the  second  Monday  in  January  of  each  year,  at 
12  M. 

2.  Special  meetings  of  the  stockholders  may  be  called  at 
the  principal  office  of  the  company  at  any  time  by  resolution 
of  the  board  of  directors,  or  upon  written  request  of  stock- 
holders holding  one  third  of  the  outstanding  stock. 

3.  Notice  of  meetings,  written  or  printed,  for  every  regular 
or  special  meeting  of  the  stockholders,  shall  be  prepared  and 
mailed  to  the  last-known  post-office  address  of  each  stock- 
holder not  less  than  ten  days  before  any  such  meeting,  and 
if  for  a  special  meeting,  such  notice  shall  state  the  object  or 
objects  thereof. 

4.  A  quorum  at  any  meeting  of  the  stockholders  shall  con- 
sist of  a  majority  of  the  voting  stock  of  the  company,  repre- 
sented in  person  or  by  proxy.    A  majority  of  such  quorum  shall 
decide  any  question  that  may  come  before  the  meeting. 

5.  The  election  of  directors  shall  be  held  at  the  annual 
meeting  of  stockholders,  and  shall,  after  the  first  election,  be 
conducted  by  two  inspectors  of  election,  appointed  by  presi- 
dent for  that  purpose.     The  election  shall  be  by  ballot,  and 
each  stockholder  of  record  shall  be  entitled  to  cast  one  vote 
for  each  share  of  stock  held  by  him. 

6.  The  order  of  business  at  the  annual  meeting,  and  as  far 
as  possible,  at  all  other  meetings  of  the  stockholders,  shall 
be:     (1)  calling  of  roll;  (2)  proof  of  due  notice  of  meeting; 
(3)  reading  and  disposal  of  any  unapproved  minutes ;  (4)  an- 
nual reports  of  officers  and  committees;   (5)   election  of  di- 
rectors; (6)   unfinished  business;  (7)  new  business;  (8)  ad- 
journment. 

Directors. 

ARTICLE    III. 

1.  The  business  and  property  of  the  company  shall  be  man- 
aged by  a  board  of  seven  directors,  who  shall  be  stockholders 
and  who  shall  be  elected  annually  by  ballot  by  the  stockhold- 
ers for  term  of  one  year,  and  shall  serve  until  election  and  ac- 
ceptance of  their  duly  qualified  successors.  Any  vacancies 


416  INDUSTRIAL     CORPORATIONS 

may  be  filled  by  the  board  for  the  tmexpired  term.    Directors 
shall  receive  no  compensation  for  their  services. 

2.  The  regular  meeting  of  the  board  of  directors  shall  be 
held  in  the  principal  office  of  the  company  in  New  York  City, 
on  the  third  Tuesday  of  each  month,  at  3  P.  M. 

3.  Special  meetings  of  the  board  of  directors  to  be  held  in 
the  principal  office  of  the  company  in  New  York  City  may  be 
called  at  any  time  by  the  president,  or  by  any  three  members 
of  the  board  or  may  be  held  at  any  time  and  place,  without 
notice,  by  unanimous  written  consent  of  all  members  at  such 
meeting. 

4.  Notices  of  both  regular  and  special  meetings  shall  be 
mailed  by  the  secretary  to  each  member  of  the  board  not  less 
than  five  days  before  any  such  meeting,  and  notices  of  special 
meetings  shall  state  the  purpose  thereof. 

5.  A  quorum  at  any  meeting  shall  consist  of  a  majority  of 
the   entire   membership   of   the   board.      A   majority   of   such 
quorum  shall  decide  any  question  that  may  come  before  the 
meeting. 

6.  Officers  of  the  company  shall  be  elected  by  ballot  by  the 
board  of  directors  at  their  first  meeting  after  the  election  of 
directors  each  year.     If  any  office  becomes  vacant  during  the 
year,  the  board  of  directors  shall  fill  the  same  for  the  unex- 
pired  term.    The  board  of  directors  shall  fix  the  compensation 
of  the-  officers  and  agents  of  the  company. 

7.  The  order  of  business  at  any  regular  or  special  meeting 
of  the  board  of  directors  shall  be:     (1)  reading  and  disposal 
of  any  unapproved  minutes ;  (2)  reports  of  officers  and  com- 
mittees;  (3)  unfinished  business;  (4)  new  business;  (5)  ad- 
journment. 

Officers. 

ARTICLE   IV. 

1.  The  officers  of  the  company  shall  be  a  president,  a  vice- 
president,  a  secretary  and  a  treasurer,  who  shall  be  elected  for 
one  year  and  shall  hold  office  until  their  successors  are  elected 
and  qualify.    The  positions  of  secretary  and  treasurer  may  be 
held  by  one  person. 

2.  The  president  shall  preside  at  all  meetings,  shall  have 
general  supervision  of  the  affairs  of  the  company,  shall  sign 
or   countersign    all    certificates,    contracts,    and   other    instru- 
ments of  the  company  as  authorized  by  the  board  of  directors, 
shall  make  reports  to  the  directors  and  stockholders  and  per- 
form all  such  other  duties  as  are  incident  to  his  office  or  are 
properly  required  of  him  by  the  board  of  directors.     In  the 


FORMS  417 

absence  or  disability  of  the  president,  the  vice-president  shall 
exercise  all  his  functions. 

3.  The  secretary  shall  issue  notices  for  all  meetings,  shall 
keep  their  minutes,  shall  have  charge  of  the  seal  and  the  cor- 
porate books,  shall  sign  with  the  president  with  such  instru- 
ments as  require  such  signature,  and  shall  make  such  reports 
and  perform  such  other  duties  as  are  incident  to  his  office,  or 
are  properly  required  of  him  by  the  board  of  directors. 

4.  The  treasurer  shall  have  the  custody  of  all  moneys. and 
securities  of  the  company,  and  shall  keep  regular  books  of  ac- 
count, and  balance  the  same  each  month.     He  shall  sign  or 
countersign  such  instruments  as  require  his  signature,  shall 
perform  all  duties  incident  to  his  office  or  that  are  properly 
required  of  him  by  the  board,  and  shall  give  bond  for  the 
faithful  performance  of  his  duties  in  such  sum  with  such  sure- 
ties as  may  be  required  by  the  board  of  directors. 

Dividends  and  Finance. 

'ARTICLE   V. 

1.  Dividends  shall  be  declared  only  from  the  surplus  profits 
at  such  times  as  the  board  of  directors  shall  direct,  and  no 
dividend  shall  be  declared  that  will  impair  the  capital  of  the 
company. 

2.  The  moneys  of  the  company  shall  be  deposited  in  the 
name  of  the  company  in  such  bank  or  trust  company  as  the 
board  of  directors  shall  designate,  and  shall  be  drawn  out  only 
by  check  signed  by  the  treasurer,  and  countersigned  by  the 
president. 

Seal. 

ARTICLE   VI. 

1.  The  corporate  seal  of  the  company  shall  consist  of  two. 
concentric  circles,  between  which  is  the  name  of  the  company, 
and  in  the  center  shall  be  inscribed,  "Incorporated  1903,  New 
York,"  and  such  seal,  as  impressed  on  the  margin  hereof,  is 
hereby  adopted  as  the  corporate  seal  of  the  company. 

Amendments. 
ARTICLE   VII. 

1.  These  by-laws  may  be  amended,  repealed,  or  altered,  in 
whole  or  in  part,  by  a  majority  vote  of  the  entire  outstanding 
stock  of  the  company,  at  any  regular  meeting  of  the  stock- 
holders, or  at  any  special  meeting  where  such  action  has  been 
announced  in  the  call  and  notice  of  such  meeting. 

2.  The  board  of  directors  may  adopt  additional  by-laws  in 
harmony  therewith,  but  shall  not  alter  nor  repeal  any  by-laws 
adopted  by  the  stockholders  of  the  company. 

28 


418  INDUSTRIAL     CORPORATIONS 

FORM   46,    CERTIFICATE    TO    BY-LAWS. 

I  hereby  certify  that  the  foregoing  are  the  by-laws  of  the 
Cedar  Falls  Coal  Company,  adopted  by  the  stockholders 
thereof  duly  assembled  in  their  first  meeting  on  the  9th  day  of 
March,  1903,  at  the  office  of  the  company,  No.  170  Broadway, 
New  York  City. 

In  testimony  whereof,  I  have  hereunto  affixed  my  official 
signature  and  the  corporate  seal  of  said  corporation  on  this 
10th  day  of  March,  1903.  Charles  E.  Goff, 

(Corporate  Seal)  Secretary. 

FORM   47,    ARIZONA    FORM    OF    BY-LAWS. 

The  following  general  form,  of  by-laws  has  been  in  gen- 
eral use  and  may  be  arranged  to  meet  any  requirement  desired. 
The  idea  of  incorporating  in  the  by-laws  statutory  and  charter 
matter  is  discouraged,  as  confusion  will  certainly  follow.  The 
charter  will  ever  be  at  hand,  and  should  a  matter  arise  about 
which  there  is  any  doubt,  the  statute  or  a  competent  attorney 
should  be  counseled. 

Name,  Location,  and  Offices. 
ARTICLE    I. 

The  name  of  this  corporation  is  the  ....  Company. 

The  company  shall  have  a  main  office  in  the  city  of  .... 
and  offices  in  such  other  places  as  the  board  of  directors  may 
determine,  at  which  place  or  places  all  incorporators',  stock- 
holders', and  directors'  meetings  may  be  held,  and  all  corpo- 
rate business  may  be  transacted. 

Seal. 

ARTICLE   II. 

The   company  shall   have   a   circular   seal   containing  the 
name  of  the  company,  the  year  of  its  creation,  and  such  other 
matter  as  the  organizers  or  stockholders  may  determine. 
Stockholders'   Meeting. 
ARTICLE   III. 

Stockholders  may  vote  at  all  meetings  either  in  person  or 
by  proxy  appointed  by  instrument  in  writing  subscribed  by  the 
stockholder  or  his  duly  authorized  attorney,  and  granted  not 
more  than  thirty  days  before  the  meeting,  which  shall  be 
named  therein.  Before  any  such  written  proxy  is  voted  upon 
it  shall  be  filed  with  the  secretary.  Each  stockholder  is  en- 
titled to  one  vote  for  each  share  of  stock  standing  in  his  name 
on  the  books  of  the  company  at  the  time  of  the  meeting. 
Shares  hypothecated  to  the  company  shall  not  be  represented. 


FORMS  419 

Stockholders  holding  a  majority  in  amount  of  the  stock- 
issued  and  outstanding  (represented  in  person  or  by  proxy), 
shall  be  necessary  and  sufficient  to  constitute  a  quorum  for 
the  transaction  of  business.  If  less  than  a  quorum  be  present, 
the  meeting  may  be  adjourned  from  time  to  time  by  a  majority 
in  interest  of  the  stockholders  present,  for  a  period  not  ex- 
ceeding one  month  at  any  time,  without  any  notice  other  than 
an  announcement  at  the  meeting  until  a  quorum  be  present. 
Any  meeting  at  which  a  quorum  is  present  may  also  be  ad- 
journed in  a  like  manner,  by  a  majority  in  interest  of  the 
stockholders  present,  for  such  time,  or  upon  such  call,  as  is 
determined  by  vote.  At  any  such  adjourned  meeting  at  which 
a  quorum  shall  be  present,  any  business  may  be  transacted 
which  might  have  been  transacted  at  the  meeting  as  originally 
notified. 

The  annual  meeting  of  the  stockholders,  after  the  year 
190. .,  shall  be  held  on  the  ....  day  of  ....  in  each  year,  at- 
....  o'clock,  ....  M.,  and  the  secretary  shall  give  notice 
thereof,  without  being  specially  requested  so  to  do.  At  such 
meeting  the  company  may  elect  directors  and  other  officers, 
and  transact  any  other  business  coming  before  the  meeting. 

Special  meetings  of  the  stockholders  shall  be  called  by  the 
secretary  at  the  written  request  of  the  president,  or  two  di- 
rectors, or  of  stockholders  of  record  owning  a  third  of  the 
stock  issued  and  outstanding. 

All  stockholders'  meetings,  whether  annual  or  special,  shall 
be  called  by  the  secretary  by  mailing  a  printed  or  written 
notice  thereof,  stating  the  day,  hour,  and  place  of  the  meet- 
ing; and,  in  case  of  special  meetings,  the  general  nature  of  the 
business  to  be  transacted,  to  each  stockholder  of  record  at  his 
last  known  post-office  address,  postage  prepaid,  at  least  five 
days,  exclusive  of  the  day  of  mailing,  before  the  date  of  the 
meeting.  Or,  such  meeting  may  be  called  by  the  secretary  by 
publishing  notice  thereof,  stating  the  day,  hour,  and  place  of 
the  meeting;  and,  in  case  of  special  meetings,  the  general  na- 
ture of  the  business  to  be  transacted,  for  ....  days  in  suc- 
cession, the  last  publication  to  be  at  least  ....  days  before  the 
date  of  meeting,  and  notice  given  in  either  of  the  foregoing 
modes  shall  be  valid.  A  failure  to  give  the  notice  for  the  regu- 
lar annual  meeting  shall  not  invalidate  the  proceedings  of  the 
meeting. 

If  all  the  stockholders  in  writing  waive  notice  of  a  special 
meeting,  no  notice  of  such  meeting  shall  be  required.  All 
meetings  of  stockholders  at  which  all  are  present,  in  person 


420  INDUSTRIAL     CORPORATIONS 

or  by  proxy,  and  sign  a  written  consent  thereto,  on  the  record 
thereof,  are  legal  and  valid  for  all  purposes,  whether  or  not 
previous  notice  has  been  given,  and  at  such  meeting  any  cor- 
porate action  may  be  taken. 

Directors'    Meeting. 
ARTICLE    IV. 

The  newly  elected  board  of  directors  may  hold  its. first 
meeting  for  the  purpose  of  organization  and  transaction  of 
business  without  notice,  at  such  time  and  place  as  shall  be 
fixed  at  the  annual  meeting  by  vote  of  the  stockholders ;  or  the 
time  and  place  of  the  first  meeting  may  be  fixed  by  the  consent 
in  writing  of  the  directors. 

At  such  meeting  the  board  shall  elect  a  president  and  a 
vice-president,  from  among  their  own  number,  and  a  secretary 
who  need  not  be  a  member  of  the  board.  This  section  shall 
not  apply  to  the  original  meeting  of  the  incorporators  for  the 
organization  of  this  company  at  which  all  the  corporate  of- 
ficers named  in  Article  V  may  be  elected  by  the  incorporators. 

Regular  meetings  of  the  board  shall  be  held  without  notice 
on  the  .  . .  .,  at  the  office  of  the  company,  in  the  city  of  .  . .  .,  at 
....  o'clock,  ....  M.,  by  order  of  the  board,  elsewhere,  on  a 
day  and  at  an  hour  and  place  to  be  fixed  by  the  board. 

A  majority  of  the  whole  board  shall  be  necessary  and  suf- 
ficient to  constitute  a  quorum  for  the  transaction  of  business, 
but  a  less  number  may  adjourn  a  meeting  from  time  to  time 
until  a  quorum  be  present. 

Meetings  of  the  board  may  be  called  by  the  president,  or 
any  two  directors  on  one  day's  notice  to  each  director,  either 
personally  or  by  letter  or  telegram. 

All  directors'  meetings  at  which  all  are  present  and  sign  a 
written  consent  thereto,  on  the  records  thereof,  are  legal 
whether  or  not  previous  notice  has  been  given. 

The  directors  may  hold  their  meetings  and  have  one  or 

more  offices,  and  keep  the  books  of  the  company  outside  of 

Arizona,  at  the  office  of  the  company,  in  the  city  of  .  . . .,  and 

at  such  other  places  as  they  may  from  time  to  time  determine. 

Officers  of  the  Company. 

ARTICLE  V. 

The  officers  of  this  company  shall  be  a  president,  vice-presi- 
dent, board  of  directors,  secretary,  ....  treasurer, 

The  directors  shall  not  be  less  than  ....  nor  more  than 
....  in  number.  One  person  may  hold  more  than  one  office. 
All  officers  (except  the  president,  vice-president,  and  secre- 
tary), shall  be  elected  annually  by  a  plurality  vote  of  the 


FORMS  421 

stockholders  at  the  regular  annual  meeting.  They  shall  con- 
tinue in  office  until  their  successors  are  elected  and  qualified. 
In  case  the  election  of  officers  should  not  occur  on  the  day  of 
the  annual  meeting,  such  officers  may  be  chosen  at  any  subse- 
quent meeting  of  the  stockholders  called  for  the  purpose. 

President. 
ARTICLE   VI. 

The  president  shall  be  elected  annually,  by  the  board  of 
directors,  as  provided  in  Article  IV  of  the  by-laws,  and  subject 
to  the  control  and  direction  of  the  board  of  directors,  he  shall 
be  the  chief  executive  officer  of  the  company.  He  shall  preside 
at  all  meetings  of  the  stockholders  and  directors;  shall  have 
general  superintendence  and  direction  of  all  the  other  officers 
of  the  company,  and  shall  see  that  all  orders  and  resolutions 
of  the  board  are  carried  into  effect.  He  shall  execute  all  deeds, 
mortgages,  bonds,  and  other  documents  authorized  by  the 
board  requiring  a  seal,  under  the  seal  of  the  Company;  shall 
keep  said  seal  in  safe  custody,  and  when  authorized  by  the 
stockholders  or  the  board,  affix  it  to  any  instrument  requiring 
the  same,  and  the  seal  when  so  affixed,  shall  be  attested  by  the 
secretary  or  treasurer.  He  shall  be  custodian  of  all  bonds 
given  to  the  company  by  its  officers  and  agents. 

He  shall  from  time  to  time,  and  whenever  requested,  re- 
port to- the  board  all  matters  within  his  knowledge,  which  the 
interests  of  the  company  may  require  to  be  brought  to  their 
notice,  perform  such  other  duties  as  may  be  required  of  him 
by  law,  these  by-laws  and  by  the  board,  and,  in  general,  have 
all  the  powers  and  duties  of  supervision  and  management 
usually  vested  in  the  office  of  a  president  of  a  corporation. 

Vice-President. 

ARTICLE   VII. 

The  vice-president  shall  be  elected  annually  by  the  board 
of  directors,  as  provided  in  Article  IV  of  these  by-laws,  and 
shall  be  vested  with  all  the  powers  and  shall  perform  all  the 
duties  of  the  president  in  the  absence  of  the  latter  from  his 
office. 

Board  of  Directors. 

ARTICLE   VIII. 

The  immediate  government  and  direction  of  the  affairs  of 
this  company  shall  be  vested  in  a  board  of  directors,  elected 
annually  as  provided  in  Article  V.  The  directors  shall  be  and 
remain  stockholders.  In  addition  to  the  powers  and  authori- 
ties expressly  conferred  upon  them,  all  the  powers  of  the  com- 


422  INDUSTRIAL     CORPORATIONS 

pany,  except  as  otherwise  provided  by  law,  or  these  by-laws, 
are  vested  in  the  board  of  directors. 

Without  prejudice  to  the  general  powers  conferred  by  the 
last  preceding1  clause,  and  other  powers  conferred  by  these  by- 
laws, the  board  shall  have  the.  following  powers,  namely : — 

1.  From  time  to  time  to  make  and  change  rules  and  regu- 
lations, not  inconsistent  with  law  or  these  by-laws,  for  the 
management  of  the  company's  business  and  affairs. 

2.  To  lease,  purchase,  or  otherwise  acquire  in  any  lawful 
manner  for  and  in  the  name  of  the  company,  any  and  all  real 
estate  and  other  property,  rights  and  privileges  whatsoever 
deemed  necessary  or  convenient  for  the  prosecution  of  its  busi- 
ness, at   such   price  or  consideration   and   generally  on    such 
terms  and  conditions  as  they  think  fit,  and  at  their  discretion 
to   pay   therefor,   either   wholly   or   partly   in   money,   stocks, 
bonds,  debentures,  or  other  securities  of  the  company. 

3.  To  sell  or  dispose  of  any  real  or  personal  estate,  prop- 
erty, rights  or  privileges  belonging  to  the  company,  whenever 
in  their  opinion  its  interests  would  thereby  be  promoted ;  and 
with  the  consent  in  writing,  and  pursuant  to  the  vote  of  the 
holders  of  a  majority  of  the  stock  issued  and  outstanding,  to 
sell,  assign,  transfer,  or  otherwise  dispose  of  the  whole  prop- 
erty of  the  company. 

4.  To  create,  issue,  and  make  mortgages,  bonds,  deeds  of 
trust,  trust  agreements  and  negotiable  or  transferable  instru- 
ments and  securities,  secured  by  mortgage  or  otherwise,  and 
to  do  every  other  act  and  thing  necessary  to  effectuate  the 
same. 

5.  To  appoint  at  their  discretion,  remove  or  suspend  such 
subordinate    officers,    agents,    or    servants,    permanently    or 
temporarily,  as  they  think  fit,  and  to  determine  their  salaries 
or  emoluments,  and  to  require  security  in  such  instances  and 
in  such  amounts  as  they  think  fit. 

6.  To  confer  by  resolution  upon  any  appointed  officer  of  the 
company  the  power  to  choose,  remove,  or  suspend  such  sub- 
ordinate officers,  agents,  or  servants. 

7.  To  appoint  any  person  or  corporation  to  accept  and  hold 
in  trust  for  the  company,  any  property  belonging  to  the  com- 
pany, or  in  which  it  is  interested,  or  for  any  other  purpose,  and 
to  execute  and  do  all  such  deeds  and  things  as  may  be  requisite 
in  relation  to  such  trust. 

8.  To  determine  who  shall  be  authorized  on  the  company's 
behalf  to  sign  bills,  notes,  receipts,  acceptances,  indorsements, 
checks,  releases,  contracts,  and  documents. 


FORMS  423 

9.  To  delegate  any  of  the  powers  of  the  board  in  the  course 
of  the  current  business  of  the  company  to  any  standing  or 
special  committee,  or  to  any  officer  or  agent,  and  to  appoint 
any  persons  to  be  agents  of  the  company,  with  such  powers 
(including  the  power  to  sub-delegate)  and  upon  such  terms 
as  they  see  fit. 

Compensation  of  Directors. 
ARTICLE   IX. 

Such  directors,  as  such,  shall  not  receive  any  stated  salary 
for  their  services,  but  by  resolution  of  the  board,  a  fixed  sum, 
and  expense  of  attendance,  if  any,  may  be  allowed  for  at- 
tendance at  each  regular  or  special  meeting  of  the  board,  pro- 
vided that  nothing  herein  contained  shall  be  construed  to  pre- 
clude any  director  from  serving  the  company  in  any  other 
capacity  and  receiving  compensation  therefor. 

Secretary. 

ARTICLE   X. 

The  secretary  shall  be  elected  annually  by  the  board  of 
directors,  as  provided  in  Article  IV  of  these  by-laws.  He  shall 
give,  or  cause  to  be  given,  notice  of  all  meetings  of  the  stock- 
holders, and  of  the  board  of  directors,  and  all  other  notices  re- 
quired by  law  or  these  by-laws,  and  in  case  of  his  absence  or 
refusal  or  neglect  to  do  so,  then  such  notice  may  be  served  by 
any  person  thereunto  directed  by  the  president  or  vice-presi- 
dent. He  shall  keep  true  records  of  all  meetings  of  the  board, 
and  perform  such  other  duties  as  may  be  prescribed  by  the 
board  of  directors  or  president,  under  whose  supervision  he 
shall  be.  He  may  be  sworn  to  the  faithful  discharge  of  his 
duties. 

Treasurer. 
ARTICLE   XI. 

The  treasurer  shall  keep  full  and  accurate  accounts  of  re- 
ceipts and  disbursements  in  books  belonging  to  the  company, 
and  shall  deposit  all  moneys  and  other  valuable  effects  in  its 
name  and  to  its  credit  in  such  depositories  as  may  be  desig- 
nated by  the  board  of  directors. 

He  shall  disburse  the  funds  of  the  company  as  may  be  or- 
dered by  the  board,  taking  proper  vouchers  therefor,  and  shall 
render  to  the  president  and  directors,  at  the  regular  meetings 
of  the  board,  or  whenever  they  may  require  it,  an  account  of 
all  his  transactions  as  treasurer,  and  of  the  financial  condition 
of  the  company.  He  shall  sign  all  checks,  drafts,  or  orders 
for  the  payment  of  money. 

He  shall  give  the  company  a  bond,  if  required  by  the  board 


424  INDUSTRIAL     CORPORATIONS 

of  directors,  in  a  sum,  and  with  sureties  satisfactory  to  the 
board  for  the  faithful  discharge  of  the  duties  of  his  office,  and 
for  the  restoration  to  the  company,  in  case  of  death,  resigna- 
tion, or  removal  from  office,  of  all  its  books,  papers,  vouchers, 
money  or  other  property  of  whatever  kind  in  his  possession. 

Resignation. 

ARTICLE  XII. 

Any  director  or  other  officer  may  resign  at  any  time.  Such 
resignations  shall  be  made  in  writing,  and  shall  take  effect  at 
the  time  specified  therein.  If  no  time  is  specified,  it  shall  take 
effect  from  the  time  of  its  receipt  by  the  secretary.  The  ac- 
ceptance of  a  resignation  shall  not  be  necessary  to  make  it 
effective.  The  secretary  shall  record  such  resignation,  noting 
the  day,  hour,  and  minute  of  its  reception. 

The  secretary  may  resign  at  any  time,  by  filing  his  resigna- 
tion with  the  board  of  directors  or  president,  said  resignation 
to  take  effect  from  and  after  the  time  of  its  receipt  by  such 
officers. 

Filling  of  Vacancies. 
ARTICLE   XIII. 

If  the  office  of  one  or  more  directors  or  other  officers  of  the 
company  become  vacant,  by  reason  of  death,  resignation,  dis- 
qualification, or  otherwise,  the  remaining  director  or  directors, 
although  less  than  a  quorum,  may  by  a  majority  vote  choose 
or  appoint  a  successor  or  successors,  who  shall  hold  office  for 
the  unexpired  term. 

Duties  of  Officers  May  be  Delegated. 

ARTICLE   XIV. 

In  case  of  the  absence  of  any  officer  of  the  company,  or  for 
any  reason  that  the  board  may  deem  sufficient,  the  board  may 
delegate  the  powers  or  duties  of  such  officer  to  any  other  of- 
ficer, or  to  any  director,  for  the  time  being,  provided  a  ma- 
jority of  the  entire  board  concur  therein. 

Issue  and  Transfer  of  Stock. 
ARTICLE   XV. 

The  president  shall  cause  to  be  issued  to  each  stockholder 
one  or  more  certificates  representing  the  number  of  shares 
owned  by  him  in  the  company,  signed  by  the  president,  and 
attested  by  the  secretary  and  bearing  the  corporate  seal. 
Neither  the  president  nor  secretary  shall  sign  blanks  and  leave 
them  for  use  by  the  other,  nor  sign  them  without  a  knowl- 
edge of  the  apparent  title  of  the  person  to  whom  they  are  is- 
sued. In  case  of  the  absence  or  disability  of  either  of  the 


FORMS  425 

said  officers,  the  signatures  of  majority  of  the  directors  in 
his  stead  are  sufficient. 

The  stock  of  this  company  is  transferable  only  upon  its 
books,  by  the  holders  of  the  shares  in  person,  or  by  their 
legal  representatives,  and  upon  such  transfer  the  old  cer- 
tificates shall  -be  surrendered  to  the  company,  by  delivery 
thereof  to  the  person  in  charge  of  the  stock  and  transfer 
books  and  ledgers,  or  such  other  person  as  the  board  of  di- 
rectors may  designate,  by  whom  they  shall  be  cancelled,  and 
new  certificate  shall  thereupon  be  issued.  A  record  shall  be 
made  of  such  transfer  and  issue. 

The  company  shall  be  entitled  to  treat  the  registered  holder 
of  any  share  as  the  absolute  owner  thereof,  and  accordingly 
shall  not  be  bound  to  recognize  any  equitable  or  other  claim 
to,  or  interest  in,  such  share  on  the  part  of  any  other  person, 
whether  or  not  it  shall  have  express  or  other  notice  thereof. 

Loss   of   Certificate. 
ARTICLE  XVI. 

Any  person  claiming  a  certificate  of  stock  to  be  lost  or 
destroyed,  shall  have  an  affidavit  or  affirmation  of  that  fact, 
and  advertise  the  same  in  such  a  manner  as  the  board  may 
require,  and  shall  give  the  company  a  bond  of  indemnity, 
in  form,  and  with  one  or  more  sureties  satisfactory  to  the 
board,  in  at  least  double  the  par  value  of  such  certificate, 
whereupon  the  president  and  treasurer  may  issue  a  certifi- 
cate of  the  same  tenor  with  the  one  alleged  to  be  destroyed  or 
lost,  but  always  subject  to  the  approval  of  the  board. 

Stock  Non-Assessable. 
ARTICLE   XVII. 

The  stock  of  the  company  shall  be  forever  non-assessable. 
This  by-law  shall  not  be  altered  or  repealed,  and  shall  form 
a  condition  upon  which  all  the  stock  of  the  company  shall 

be  issued. 

Dividends. 

ARTICLE  XVIII. 

The  board  of  directors  shall  declare  dividends  out  of  the 
surplus  profits  whenever  they  deem  it  expedient. 

Statement  of  Condition. 
ARTICLE   XIX. 

The  board  of  directors  shall  present  when  called  for,  by 
the  stockholders,  a  full  and  clear  statement  of  the  business 
and  condition  of  the  company. 


426  INDUSTRIAL     CORPORATIONS 

Notice. 
ARTICLE   XX. 

Whenever  notice  is  required  by  statute,  or  by  these  by- 
laws to  be  given  to  the  stockholders,  or  to  the  directors,  or 
to  any  officer  of  the  company,  personal  notice  is  not  meant 
unless  expressly  so  stated,  and  any  notice  so  required  (other 
than  by  publication)  shall  be  deemed  to  be  sufficient,  if 
given  by  depositing  the  same  in  a  post-office  box  in  a  special 
post-paid  wrapper,  addressed  to  such  stockholder,  director 
or  officer,  and  such  notice  shall  be  deemed  to  have  been  given 
at  the  time  the  same  is  mailed,  except  when  notice  is  given 
by  wire,  when  such  notice  shall  be  deemed  to  have  been 
given  at  the  time  the  same  is  delivered  to  the  telegraph  com- 
pany. 

Waiver  of  Notice. 

ARTICLE  XXI. 

Any  stockholder,  officer  or  director,  may  at  any  time  waive 
any  notice  required  to  be  given  under  these  by-laws. 

Amendments. 
ARTICLE  XXII. 

The  stockholders,  by  an  affirmative  vote  of  a  majority 
of  the  stock  issued  and  outstanding,  may  at  any  regular,  or 
upon  notice  at  any  special  meeting,  alter  or  amend  these  by- 
laws in  any  manner  not  contrary  to  law. 

In  Witness  Whereof  the  foregoing  by-laws  are  hereby 
adopted,  by  the  incorporators  and  stockholders  as  the  by- 
laws of  the this  the day  of A.  D.,  190.  . 

(Signed)  (SEAL) 

• (SEAL) 

Note. — Any  article  of  the  foregoing  by-laws,  or  any  por- 
tion thereof,  may  be  enlarged,  modified,  substituted  or  dis- 
carded altogether  without  affecting  the  remainder. 

§  284.    Bonds,  Corporate. 

Bonds  have  no  particular  form.  However  to  be  negoti- 
able, they  must  contain  the  same  essential  features  of  negoti- 
ability as  any  or  all  other  negotiable  paper.  In  order  that 
any  instrument  "be  negotiable,  it  must  contain  the  following 
essentials  of  negotiability : — 

1.  It  must  be  in  writing. 

2.  It  must  contain  an  unconditional  promise  or  order  to 
pay. 


FORMS  427 

3.  It  must  be  payable  in   money  only.     Bonds  may  pro- 
vide for  convertibility  into  stock. 

4.  Must  be  certain  in  amount. 

5.  Must  be  payable  to  a  specified  person. 

6.  Must  be  payable  at  a  time  certain. 

7.  Must  contain  words,  "to  order  or  to  bearer,"  or  lan- 
guage equivalent  thereto. 

8.  Must  be  delivered. 

Negotiability  entitles  the  holder  of  an  instrument: — 

1.  To  its  face  value  without  reduction. 

2.  Xo  rights  or  equities  existing  between  previous  holders 
can  affect  the  holders'  rights. 

NON-NEGOTIABLE   CONTRACTS. 

Non-negotiable  contracts  pass  with  all  equities  following 
them  in  whomsoever  hands  they  may  come. 

Corporate  stock  have  some  of  the  elements  of  nego- 
tiability, and  are  generally  held  to  be  negotiable  where  it  can 
be  seen  from  its  face,  that  was  its  purpose. 

If  a  paper  lack  any  one  of  the  above  stated  essentials,  it 
will  fail  to  be  negotiable  paper,  and  falls  back  into  the  class 
of  non-negotiable  instruments  which  are  instruments  that 
pass  simply  by  assignment  or  are  assignable  instruments. 
Bonds  secured  by  mortgage  may  be  authorized  by  the  board 
of  directors  without  any  authority  from  the  stockholders,  un- 
less limited  by  statutory  enactment.  In  case  of  statutory 
restrictions  upon  the  board  of  directors,  then  and  then  only 
is  it  necessary  to  have  authority  from  the  stockholders  to 
mortgage  and  bond  the  corporate  property. 

FORM  48,    FORM   OF   COUPON. 

$10.00  $10.00 

On  the  first  day  of ,  1 . . .  .,  the  Commercial  Cable 

Company  will  pay  the  bearer  at  the  office  of  the  Farmers' 
Loan  and  Trust  Company,  Ten  Dollars  in  gold  coin,  being 
three  months'  interest  due  on  its  first  mortgage  bond  for 
one  thousand  dollars. 

Treasurer. 

Bonds  are  to  bear  the  following  certificate  endorsed  upon 
them,  to  be  signed  by  said  trustee : — 


428  INDUSTRIAL   CORPORATIONS 

FORM  49,  TRUSTEE'S  CERTIFICATE. 

The  Farmers'  Loan  and  Trust  Company,  Trustee,  hereby 
certifies  that  this  bond  is  one  of  the  issue  referred  to  within. 
The  Farmers'  Loan  and  Trust  Co. 

By 

Trustee. 


Vice-President. 

FORM   50,    FORM  OF  REGISTERED  BOND. 

United  States  of  America. 
No 

The  Commercial  Cable  Company,  New  York. 

First  Mortgage  four  per  cent.     Gold  Bond. 

Principal  due  January  1,  2404. 

Interest  payable  quarterly,  on  the  first  days  of  January, 
April,  July,  and  October,  at  the  rate  of  four  per  cent  per 
annum. 

For    value    received,    The    Commercial    Cable    Company 

promises  to  pay  to. or  assigns, dollars  in 

gold  coin  of  the  United  States  of  America  of  or  equal  to  the 
present  standard  of  weight  and  fineness  at  the  office  of  the 
Commercial  Cable  Company,  in  the  City  of  New  York,  on 
the  first  day  of  January,  A.  D.,  two  thousand  four  hundred 
and  four,  and  to  pay  interest  thereon,  in  like  gold  coin,  at 
the  rate  of  four  per  centum  per  annum,  from  the  first  day  of 

,  190 ,  until  such  principal  sum  shall  be  paid, 

such  interest  being  payable  at  said  office  on  the  first  days 
of  January,  April,  July,  and  October,  in  each  year. 

This  bond  is  one  of  an  issue  of  bonds,  coupon  and  reg- 
istered, of  like  tenor,  to  an  amount  not  .exceeding  in  the  aggre- 
gate twenty  million  dollars,  all  of  which  are  equally  secured  by 
a  mortgage  deed  of  trust,  bearing  date  January  1,  1904,  made 
by  the  said  Commercial  Cable  Company  to  said  The  Farmers' 
Loan  and  Trust  Company,  as  Trustee,  of  and  upon  the 
property  and  franchises  of  the  Commercial  Cable  Company, 
(including  the  franchises,  stock  and  property  of  the  Postal 
Telegraph  Cable  Co.,  heretofore  acquired  by  said  The  Com- 
mercial Cable  Company. 

In  case  of  default  for  six  months  after  due  demand  in  the 
payment  of  interest  on  any  of  said  bonds,  the  principal  of  all 
thereof  may  be  declared  due  in  the  manner  and  with  the 
effect  provided  in  said  mortgage  deed  of  trust.  All  payments 


FORMS  429 

upon  this  bond  of  both  principal  and  interest  are  to  be  made 
without  deduction  for  any  tax  or  taxes  which  said  Cable 
Company  may  be  required  to  pay  or  retain  therefrom,  by 
any  present  or  future  laws  of  the  United  States  of  America, 
or  any  of  the  States  thereof  said  Cable  Company  hereby  cov- 
enanting and  agreeing  to  pay  any  and  all  such  tax  or  taxes. 

This  bond  is  transferable  only  at  the  office  of  said  The 
Commercial  Cable  Company  on  the  books  of  said  The  Com- 
mercial Cable  Company  by  the  registered  owner  in  person  or 
by  attorney  upon  the  surrender  hereof,  and  may  be  trans- 
ferred into  similar  bonds  of  smaller  denominations  or  be 
merged  with  other  bonds  of  this  issue  into  a  similar  bond  of 
larger  denomination  except  that  the  only  denomination  shall 
be  $100,  $500,  $1,000,  $5,000,  and  $10,000. 

Installments  of  interest  on  this  bond  shall  be  paid  by 
check  or  warrants  mailed  to  the  proprietors  at  their  addresses 
registered  in  the  books  of  said  Cable  Company,  and  such  pay- 
ments shall  be  in  full  in  the  order  of  their  maturity  and  in  ac- 
cordance with  the  provisions  of  said  mortgage  deed  of  trust. 

This  bond  may  be  exchanged  for  the  Debenture  Stock  of 
said  The  Commercial  Cable  Company  on  the  terms  set  forth 
in  the  mortgage  deed  of  trust  securing  this  bond. 

This  bond  shall  not  be  valid  or  obligatory  until  the  cer- 
tificate endorsed  hereon  shall  have  been  signed  by  the  Trus- 
tee under  the  said  mortgage  deed  of  trust. 

In  Witness  Whereof,  The  Commercial  Cable  Company  has 

on  this  ....  day  of caused  its  corporate  seal  to  be 

affixed  hereto  and  this  bond  to  be  signed  by  its  Vice-President 
and  Treasurer. 

The  Commercial  Cable  Company. 
By  , 

Vice-President. 
Attest: ,  , 

Secretary.  .     Treasurer. 

The  above  class  of  bonds  usually  contain  a  registration 
clause,  as  follows: — 

FORM  51,  "REGISTRATION  TO  GOLD  BOND." 

This  bond  shall  pass  by  delivery,  or  by  transfer  upon  the 
transfer  books  of  the  company  in  the  city  of  New  York.  After 
registration  of  ownership  certified  hereon  by  the  transfer  agent 
of  the  company,  no  transfer,  except  on  the  books  of  the  com- 
pany, shall  be  valid,  unless  the  last  transfer  is  to  bearer,  which 


4-30  INDUSTRIAL     CORPORATIONS 

shall  restore  transferability  by  delivery;  and  it  shall  continue 
subject  to  successive  registrations,  and  transfers  to  bearer  as 
aforesaid,  at  the  option  of  each  holder. 

This  registration  clause  must  be  signed  by  the  registration 
agent. 
§  285.     Deed  by  a  Corporation. 

The  form  of  a  deed  by  a  corporation  is  the  same  practi- 
cally as  any  deed  except  that  it  contains  clauses  granting  the 
power  to  make  the  deed  from  the  board  of  directors,  but  this 
may  be  omitted  from  the  deed,  and  possibly  should  be  when 
the  deed  is  properly  signed  and  the  name  of  the  company 
appears  in  the  body  of  the  deed.  Every  deed  has  seven  re- 
quisites: (1)  It  must  be  in  writing;  (2)  it  must  be  signed; 
(3)  it  must  be  sealed ;  (4)  it  must  be  attested ;  (5)  it  must  be 
acknowledged;  (6)  it  must  be  delivered;  (7)  it  must  be  re- 
corded. 

These  are  not  all  essential  requisites,  as  between  the 
grantor  and  the  grantee  the  title  will  pass  by  making,  signing, 
sealing,  and  delivering  it.  It  is  recorded  to  give  construc- 
tive notice  of  the  transfer. 

An  Approved  Form  for  the  State  of  California. 

FORM    52,    DEED   BY  A   CORPORATION   WITH    RESOLUTION   BOARD. 

This  indenture,  made  this  eighth  day  of  March,  A.  D.,  one 
thousand  nine  hundred  and  four,  by  and  between  the  Chloride 
Mining  Company,  a  corporation  duly  organized  under  the  law 
of  the  State  of  California,  whose  principal  place  of  business  is 
in  the  city  and  county  of  San  Francisco,  State  of  California, 
party  of  the  first  part,  and  William  Dodge  and  A.  B.  Balker,  of 
said  city  and  county,  parties  of  the  second  part,  witnesseth : — 

That  Whereas,  The  said  party  of  the  first  part  is  a  corpora- 
tion duly  incorporated  and  existing  under  and  by  virtue  of  the 
law  of  the  State  of  California,  and  in  pursuance  of  the  statutes 
in  such  cases  made  and  provided,  has  acquired  and  is  owner  of 
a  certain  mine  known  as  the  Chloride  Mine,  situate  in  the  pio- 
neer mining  district  in  Tulare  County,  Nevada ; 

And  Whereas,  The  board  of  trustees  of  said  corporation 
duly  assembled  and  duly  passed  the  following  resolution  : — 

''It  is  resolved  by  the  trustees  of  the  Chloride  Mining  Com- 
pany, that  it  is  for  the  best  interest  of  said  company  to  sell 


FORMS  431 

and  convey  said  mine  for  the  sum  of  One  Hundred  Thousand 
Dollars,  gold  coin  of  the  United  States,  and  apply  the  proceeds 
of  said  sale  for  the  payment  of  the  debts  of  said  company,  and 
J.  S.  Dinsmore,  President,  and  John  Brown,  Secretary  of  said 
Chloride  Mining  Company  are  hereby  authorized  and  directed 
to  make,  execute  and  deliver  for  and  in  behalf  of  the  said 
Chloride  Mining  Company  and  as  its  act  and  deed  to  said 
William  Dodge  and  A.  B.  Balker  a  conveyance  of  said  mine 
and  mining  location,  (here  give  general  description  and  loca- 
tion of  the  mine)  and  to  affix  to  said  conveyance  the  corporate 
seal  and  name  of  said  corporation." 

Now,  therefore,  in  pursuance  of  said  resolution  aforesaid 
and  in  consideration  of  the  sum  of  One  Hundred  Thousand 
Dollars,  United  States  gold  coin,  paid  by  said  parties  of  the 
second  part,  the  receipt  whereof  is  hereby  acknowledged,  the 
said  party  of  the  first  part  doth  by  these  presents,  grant,  bar- 
gain, sell,  convey  and  confirm  unto  the  said  parties  of  the  sec- 
ond part,  their  heirs  and  assigns  forever  (Give  full  description 
of  the  mine),  together  with  all  the  dips,  spurs,  angles,  and 
also  all  the  metals,  ores,  gold-  and  silver-bearing  quartz,  rock 
and  earth  therein  ;  and  also  all  and  singular  the  tenements, 
hereditaments  and  appurtenances  thereto  belonging  or  in  any- 
wise appertaining,  and  the  rents,  issues,  and  profits  thereof. 

To  have  and  to  hold,  all  and  singular,  the  said  premises, 
together  with  the  appurtenances  and  privileges  thereto  inci- 
dent, unto  the  said  parties  of  the  second  part,  their  heirs, 
executors,  administrators  and  assigns  forever. 

In  Witness  Whereof,  the  said  party  of  the  first  part,  by 
resolution  of  its  board  of  directors,  has  caused  these  presents 
to  be  subscribed  by  its  president  and  secretary,  and  its  corpo- 
rate name  and  seal  to  be  hereunto  affixed,  the  day  and  the  year 
as  above  written. 

(SEAL)  The  Chloride  Mining  Company, 

By  J.  D.  Dinsmore,  President. 

Attest:    Samuel  McCrackin,  Secretary. 

(Acknowledgment  of  Deed,  see  form  of.) 

§  286.     Mortgages  and  Deeds  of  Trust. 

The  mortgage  of  a  corporation  is  not  necessarily  a  contract 
in  any  particular  form.  It  may  be  in  the  form  of  a  deed  of 
trust.  Sometimes,  however,  a  deed  absolute  with  a  defeasance 
will  operate  as  a  mortgage,  and  a  deed  absolute  on  its  face 


432  INDUSTRIAL     CORPORATIONS 

without  the  defeasance  may  be  proved  by  parol  to  be  a 
mortgage. 

Forms  have  been  enacted  by  the  various  legislatures  of 
the  States  and  in  such  cases  it  is  possibly  practical  for  local 
or  local  contracts  to  follow  those  forms ;  however,  they  are  not 
absolute,  unless  made  so  by  local  statute,  and  any  form  of  con- 
tract that  is  entered  into  by  the  respective  contracting  parties 
is  valid.  At  this  day  and  age  of  the  world,  short  forms  are 
considered  the  better  for  all  kinds  of  contracts.  The  courts 
favor  this  character  of  instruments,  and  business  favors  this 
character  of  instruments. 

In  regard  to  forms  long  drawn  out,  Chancellor  Kent  had 
the  following  to  observe  in  respect  to  a  deed: — 

"But  persons  usually  attach  so  much  importance  to  the 
solemnity  of  forms,  which  bespeak  care  and  reflection,  and  they 
feel  such  deep  solicitude  in  matters  that  concern  their  val- 
uable interest,  to  make  assurance  doubly  certain,  that  gener- 
ally in  important  cases  the  purchaser  would  rather  be  at  the 
expense  of  exchanging  a  paper  of  such  insignificance  of  ap- 
pearance for  a  conveyance  surrounded  by  the  usual  outworks, 
and  securing  respect  and  checking  attacks  by  the  formality 
of  its  manner,  the  prolixity  of  its  provisions  and  the  usual 
redundancy  of  its  language." 

Furthermore,  "I  apprehend  that  a  deed  would  be  perfectly 
competent  in  any  part  of  the  United  States,  to  convey  the  fee,  if 
it  was  to  be  to  the  following  effect :  I,  A.  B.,  in  consideration  of 
one  dollar  to  me  paid  by  C.  D.,  do  bargain  and  sell  (or  in  New 
York,  grant)  to  C.  D.  and  his  heirs  (in  New  York,  Virginia, 
etc.,  the  words,  'and  his  heirs/  may  be  omitted),  the  lot  of 
land  (describe  it).  Witness  my  hand  and  seal,"  etc. 

It  may  be  observed  generally  that  the  only  real  difference 
between  a  deed  and  a  mortgage  is  the  defeasance  clause. 
There  are  various  clauses,  however,  which  may  be  injected 
into  a  mortgage  by  the  parties. 

FORM    53,     MORTGAGE  BY  CORPORATION  TO  CORPORATION. 

Clause  concerning  interest,  insurance,  assessments,  and 
receivers  provided  for  may  be  adjusted  to  the  laws  of  any 
State. 

This  indenture,  made  this  .  . .  .day  of. . . .,  in  the  year  of  our 


FORMS  433 

Lord,  one  thousand  eight  hundred  and ,  between  , 

a  corporation  created  and  existing  under  and  by  virtue  of  the 
laws  of  the  State  of  .  . .  .,  and  doing  business  in  the  State  of 
.  . .  .,  party  of  the  first  part,  and.  . .  .,  a  corporation  created 
and  existing  under  and  by  virtue  of  the  laws  of  the  State  of 
....,  having  its  principal  office  in  the  County  of  ....,  and 
State  of  . . . .,  party  of  the  second  part. 

Whereas,  the ,  justly  indebted  to  the  said  party  of  the 

second  part  in  the  sum  of  ...  .dollars,  secured  to  be  paid  by 
....  certain 

Now,  therefore,  this  indenture  witnesseth,  that  the  said 
party  of  the  first  part,  for  the  better  securing  the  payment 
of  the  money  aforesaid,  with  interest  thereon  according  to  the 
tenor  and  effect  of  the  said  ....  above  mentioned,  and  also 
in  consideration  of  the  further  sum  of  one  dollar,  to  it  in  hand 
by  said  party  of  the  second  part,  at 'the  delivery  of  these  pres- 
ents the  receipt  whereof  is  hereby  acknowledged,  has  granted, 
bargained,  sold,  remised,  released,  conveyed,  aliened,  and  con- 
firmed, and  by  these  presents  does  grant,  bargain,  sell,  remise, 
release,  convey,  alien  and  confirm  unto  the  said  party  of  the 
second  part,  and  to  its  successors  and  assigns  forever,  all  the 
following  described,  lot. . . .,  piece. . .  .,  or  parcel.  ...  of  land, 
together  with  all  the  rents,  issues  and  profits  thereof,  situate 

in  the  ....  of County and  State  of  . . . .,  and  known 

and  described  as  follows,  to  wit: — 

To  have  an'd  to  hold  'the  same,  together  with  all  and  singu- 
lar the  tenements,  heriditaments,  privileges,  and  appurtenances 
thereunto  belonging  or  in  anywise  appertaining;  and  also 
all  the  estate,  interest,  and  claim)  whatsoever,  in  law  as  well  as 
in  equity,  which  the  said  party  of  the  first  part  has  in  and  to 
the  premises  hereby  conveyed  unto  the  said  party  of  the  second 
part,  its  successors  and  assigns,  and  to  their  only  proper  use, 
benefit,  and  behoof,  forever. 

Provided  always,  and  these  presents  are  upon  the  express 
condition  that  if  the  said  party  of  the  first  part,  its  successors 
or  assigns,  shall  well  and  truly  pay,  or  cause  to  be  paid,  to  the 
said  party  of  the  second  part,  its  successors  or  assigns,  the 
aforesaid  sum  of  money  with  interest  thereon,  at  the  time  and 
in  the  manner  specified  in  the  above  mentioned..,  according 
to  the  true  intent  and  meaning  thereof,  then  and  in  that  case, 
these  presents  and  everything  herein  expressed,  shall  be  ab- 
solutely null  and  void. 

But  it  is  further  provided  and  agreed,  that  if  default  be 
29 


434  INDUSTRIAL     CORPORATIONS 

made  in  the  payment  of  the  said....  or  any  part  thereof,  or 
the  interest  thereon,  or  any  part  thereof,  at  the  time  and  in 
the  manner  and  at  the  place  above  limited  and  specified  for 
the  payment  thereof,  or  in  case  of  waste  or  non-payment  of 
taxes  or  assessments,  or  neglect  to  procure  or  renew  insurance, 
as  hereinafter  provided,  or  in  case  of  the  breach  of  any  of  the 
covenants  or  agreements  herein  contained,  then  and  in  such 
case,  the  whole  of  said  principal  and  interest  secured  by  the 
said.... in  this  mentioned,  shall  thereupon  at  the  option  of 
the  said  party  of  the  second  part,  its  successors,  attorneys, 
or  assigns,  become  immediately  due  and  payable ;  anything 
herein  or  in  said contained  to  the  contrary  notwithstand- 
ing, and  this  mortgage  may  then  be  immediately  foreclosed  to 
pay  the  same  by  said  party  of  the  second  part,  its  successors 
or  assigns,  and  it  shall  be  lawful  for  the  party  of  the  second 
part,  its  successors,  attorneys,  or  assigns,  to  enter  into  and 
upon  the  premises  hereby  granted,  or  any  part  thereof,  and  to 
receive  all  rents,  issues,  and  profits  thereof.  And  the  party  of 
the  first  part  hereby  authorizes  and  empowers  any  attorney 
of  any  court  of  record  to  enter  its  appearance  upon  the  filing 
of  any  bill  to  foreclose  this  mortgage  in  any  court  having 
jurisdiction  thereof,  and  to  file  an  answer  for  it  and  in  its 
name,  stating  the  amount  that  may  then  be  owing  on  said  .... 
in  this  mortgage  mentioned  for  principal  and  interest  also  for 
costs,  taxes,  insurance,  attorney's  fees,  and  other  money  ex- 
pended under  the  provisions  contained  herein,  whether  the 
same  be  due  by  the  terms  of  this  mortgage  or  by  option  of  the 
said  party  of  the  second  part,  its  successors  or  assigns,  and  to 
consent  and  agree  to  an  immediate  decree  being  entered  for 
the  amount  therein  stated  to  be  so  due  and  owing  in  favor  of 
the  said  party  of  the  second  part,  its  successors  or  assigns, 
and  to  consent  and  agree  that  an  immediate  sale  of  said 
premises  may  be  made,  and  that  no  appeal  shall  be  taken  from 
such  decree  or  writ  of  error  sued  out  thereon. 

In  case  of  the  filing  of  any  bill  in  any  court  of  competent 
jurisdiction  to  foreclose  this  mortgage,  the  court  may  appoint 
....,  to  any  suitable  person,  receiver,  with  power  to  collect 
rents,  issues  and  profits  arising  out  of  said  premises  during 
the  pendency  of  such  foreclosure  suit,  and  until  the  right  to 
redeem  said  premises  from  any  sale  thereof,  to  be  made  by 
virtue  of  said  proceedings,  shall  have  expired,  and  such  rents, 
issues,  and  profits  shall  be  applied  toward  the  payment  of  such 
indebtedness,  and  the  costs  of  such  foreclosure.  And  upon 
the  foreclosure  of  this  mortgage  by  proceedings  in  court,  or 


FORMS  435 

ill  case  of  any  suit  or  proceeding  at  law  or  in  equity,  wherein 
said  party  of  the  second  part,  its  successors  or  assigns,  or  the 
legal  holder  of  said  .  . .  .,  or  either  of  them  shall  be  a  party 
plaintiff  or  defendant,  by  reason  of  their  being  a  party  to  this 
mortgage,  or  a  holder  of  either  of  said  .  . .  . ,  he  or  they  will  be 
allowed  and  paid  by  the  said  party  of  the  first  part,  their  rea- 
sonable costs  and  charges,  and  ....  dollars,  as  attorneys  and 
solicitors'  fees  in  such  suit  or  proceeding,  and  the  same  shall 
be  included  as  a  part  of  the  costs  in  any  decree  for  the  fore- 
closure of  this  mortgage  or  the  sale  of  said  premises. 

And  in  consideration  of  the  money  loaned  as  aforesaid  fo 
the  said  party  of  the  first  part,  and  in  order  to  create  a  first 
lien  and  incumbrance  on  said  premises  under  this  mtortgage, 
for  the  purposes  aforesaid,  and  to  carry  out  the  foregoing 
specific  application  of  the  proceeds  of  any  sale  that  may  be 
made  by  virtue  hereof,  the  said  party  of  the  first  doth  hereby 
agree  to  surrender  up  possession  thereof  to  the  purchaser  or 
purchasers  at  such  sale,  or  to  any  receiver  that  m'ay  be  ap- 
pointed by  the  court,  peaceably  on  demand. 

And  the  said  ....  for  itself  and  its  successors  and  assigns, 
covenants  and  agrees  to  and  with  the  said  party  of  the  second 
part,  its  successors  and  assigns,  that  at  the  time  of  the  sealing 
and  delivery  of  these  presents,  it  is  well  seized  of  said  premises 
in  fee  simple  and  has  good  right,  full  power  and  lawful  au- 
thority to  grant,  bargain,  and  sell  the  same  in  manner  and 
form  as  aforesaid ;  that  the  same  are  free  and  clear  of  all  leins 
and  incumbrances  whatsoever;  and  that  it  will  forever  war- 
rant and  defend  the  same  against  all  lawful  claim's ;  that  the 
said  party  of  the  first  part  will  in  due  season  pay  all  taxes 
and  assessments  on  said  premises,  and  will  exhibit  once  a 
yenr,  on  demand,  receipts  of  the  proper  persons  to  said  party 
of  the  second  part,  or  its  assigns,  showing  payment  thereof, 
until  the  indebtedness  aforesaid  shall  be  fully  paid ;  and  will 
keep  all  buildings  that  may  at  any  time  be  on  said  premises 
during  the  continuance  of  said  indebtedness,  insured  in  such 
company  or  companies  as  the  said  party  of  the  second  part, 
or  its  successors  or  assigns,  may  from  time  to  time  direct,  for 
such  sumi  or  sums  as  such  company  or  companies  will  insure 
for,  not  to  exceed  the  amount  of  said  indebtedness  except  at 
the  option  of  said  party  of  the  first  part,  and  will  make  the 
loss,  if  any,  payable  to,  and  deposit  the  policy  or  policies  with 
the  said  party  of  the  second  part,  its  successors  or  assigns, 
as  further  security  for  the  indebtedness  aforesaid.  And  in 


436  INDUSTRIAL     CORPORATIONS 

/ 

case  of  the  refusal  or  neglect  of  said  party  of  the  first  part,  or 
either  of  them,  thus  to  insure,  or  assign  the  policies  of  in- 
surance, or  to  pay  taxes,  said  party  of  the  second  part,  its 
successors  or  assigns,  or  either  of  them,  may  procure  such  in- 
surance or  pay  such  taxes,  and  all  money  thus  paid  with  inter- 
est thereon  at  seven  per  cent  per  annum,  shall  become  so  much 
additional  indebtedness  secured  by  this  mortgage,  and  to  be 
paid  out  of  the  proceeds  of  sale  of  the  lands  and  premises 
aforesaid,  if  not  otherwise  paid  by  said  party  of  the  first  part. 
This  mortgage  is  executed  pursuant  to  authority  given  by  the 
board  of  ....  of  said  corporation. 

And  it  is  stipulated  and  agreed,  that  in  case  of  default  in 
any  of  said  payments  of  principal  or  interest,  according  to  the 
tenor  and  effect  of  said  ....  aforesaid,  or  either  of  them,  or 
any  part  thereof  or  of  a  breach  of  any  of  the  covenants  or 
agreements  herein  by  the  party  of  the  first  part,  its  successors 
or  assigns,  then,  and  in  that  case  the  whole  of  said  principle 
sum  hereby  secured,  and  the  interest  thereon  to  the  time  of 
the  sale,  may  at  once,  at  the  option  of  the  said  party  of  the 
second  part,  its  successors,  attorneys  or  assigns,  become  due 
and  payable,  and  this  mortgage  may  be  foreclosed  in  the 
manner  and  with  the  same  effect  as  if  the  said  indebtedness 
had  matured. 

In  testimony  whereof,  the  said  ....  company  hath  here- 
unto caused  its  corporate  seal  to  be  affixed,  and  these  presents 
to  be  signed  by  its  ....  president,  and  attested  by  its  .... 
secretary,  the  day  and  year  first  above  written. 

Signed,  sealed,  and  delivered  in  the  presence  of — 

J.  C.  Toney,          Phelps  Dodge  Gold  Mining  Company. 

O.  C.  Sharp     (SEAL).  By  Thomas  Johnson, 

By  T.  J.  Roberts.  President. 

Attest:    P.  C.  Hull,  T.  J.  Roberts, 

Treasurer.  Secretary. 

§  287.     Chattel  Mortgages. 

The  law  on  chattel  mortgages  has  such  a  variety  of  re- 
quirements throughout  the  various  statutes  of  the  States  of 
the  Union  that  it  would  be  practically  impossible  to  lay  out  a 
form  that  would  cover  them  all.  A  chattel  mortgage,  like  any 
other  contract,  rests  upon  the  intention  of  the  parties,  and 
further  than  that,  its  other  essential  requirements  can  be 
looked  to  in  the  laws  of  the  State  or  country  where  the  con- 
tract is  made.  An  approved  form  that  may  be  adjusted  to 


FORMS  437 

suit  both  corporations  and  individuals  under  the  requirements 
of  any  law,  possibly  may  be  as  follows : — 

FORM    54,    CHATTEL   MORTGAGE   BETWEEN   CORPORATION   AND 
CORPORATION. 

Know  All  Men  by  These  Presents,  That  whereas  the  .... 
Company,  a  corporation  organized  under  the  laws  of  the 
State  of  New  York,  is  indebted  unto  the  ....  Company,  a 
corporation  organized  under  the  laws  of  the  State  of  New 
Jersey,  in  the  sum  of  ....  dollars  ($....),  being  for  goods 
sold  and  delivered  unto  the  said  ....  Company. 

Now,  for  securing  the  payment  of  the  said  debt  and  the 
interest  thereon  to  the  said  ....  Company,  does  hereby  sell, 
assign,  and  transfer  to  the  said  ....  Company  all  the  goods, 
chattels,  and  property  described  in  the  following  schedule, 
namely : — 

(Describe  the  property  to  be  mortgaged.)  Said  property 
now  being  and  remaining  in  the  possession  of  said  ....  Com- 
pany at  its  ....  rooms,  No ,  ....  Street,  New  York  City. 

Provided  always,  and  this  mortgage  is  on  the  express  con- 
dition that  if  the  said  ....  Company  shall  pay  to  the  said  .... 
Company,  the  sum,  of  ....  dollars  ($....),  with  interest  from 
date  hereof,  at  the  rate  of  ....  per  cent  per  annum,  on  or  be- 
fore the  first  day  of  . . . .,  190.  .,  which  said  sum  and  interest 
the  said  ....  Company  hereby  covenants  to  pay,  then  this 
transfer  is  to  be  void  and  of  no  effect ;  but  should  said  .... 
Company  not  pay  said  sum,  with  interest  to  date  of  payment, 
on  or  before  the  date  aforesaid,  then  the  said  ....  Company 
shall  have  full  power  and  authority  to  enter  upon  the  premises 
of  said  ....  Company,  or  any  other  place  or  places  where  the 
goods  and  chattels  aforesaid  may  be,  and  to  take  possession 
of  said  property  and  to  sell  the  same,  or  so  much  thereof  as 
may  be  necessary  to  satisfy  the  said  debt  and  the  interest 
thereon  from  the  proceeds  thereof,  after  deducting  all  ex- 
penses of  such  sale  and  the  keeping  of  said  property;  and  any 
such  sale  shall  be  public  and  only  after  due  announcement 
thereof  for  two  weeks  previous  thereto  in  one  of  the  daily 
papers  published  in  the  city  of  New  York,  any  proceeds  in  ex- 
cess of  the  amount  of  said  debt  and  interest  thereon,  and  of 
the  expenses  of  said  sale  and  keeping  of  said  property,  shall 
belong  to  the  said  ....  Company  and  be  paid  over  to  it  with- 
out delay.  If  from  any  cause  said  property  shall  fail  to  satisfy 
said  debt,  interest,  cost,  and  charges,  the  said  ....  Company 
hereby  covenants  and  agrees  to  pay  the  deficiency. 


438  INDUSTRIAL     CORPORATIONS 

In  Witness  Whereof,  The  ....  Company  has  caused  its 
corporate  signature  to  be  signed  hereunto  by  its  president, 
and  its  corporate  seal  to  be  affixed  and  duly  attested  by  its 
secretary,  this  ....  day  of  . . .  .,  190. . .  . 

(Corporate  Seal)  Company. 

(Attest  Seal)  By , 

,  Secretary.  President. 

(For  acknowledgment,  see  forms  of.) 

§  288.     Debenture. 

The  debenture,  as  understood  in  America,  is  a  character 
of  acknowledged  floating  indebtedness  created  by  corpora- 
tions, having  the  nature  of  a  lein  on  collateral  security  and 
denned  by  Cavanaugh  Money  Securities,  (2d.  ed.,  p.  355) 
as, — 

"an  instrument  in  writing,  generally  under  seal,  creating  a 
definite  charge  on  a  definite  or  indefinite  fund  or  subject  of 
property  in  favor  of  a  given  person,  or  of  a  given  person  and 
his  order  or  bearer,  and  constituting  a  member  in  a  series  of 
instruments  each  entitling  the  original  holder  thereof  to  sim- 
ilar rights.  Hence  a  debenture  is  distinguished  (1)  from  a 
mortgage,  which  is  an  actual  transfer  of  property ;  (2)  from 
a  bond,  which  does  not  directly  affect  property ;  and  (3)  from 
a  mere  charge  on  property,  which  is  individualized  and  does 
not  form  part  in  a  series  of  similar  charges." 

Debentures  may  be  issued  by  a  single  person,  by  a  partner- 
ship or  by  a  corporation. 

The  debenture  itself  is  in  fact  a  note  with  collateral  se- 
curity deposited  with  the  trustee  for  its  indemnity.  They  are 
issued  usually  in  series  and  are  negotiable  or  non-negotiable 
as  their  language  implies.  They  are  in  different  forms  and 
vary  in  their  terms  to  suit  the  parties  concerned.  A  form  of 
debenture  called  "collateral  trust  indenture,"  issued  by  the 
Northern  Pacific  Railway  Company  was  as  follows,  to  wit 
(the  word  "indenture"  is  an  old  legal  term,  and  was  originally 
given  to  a  deed  signed  by  two  persons,  which  were  precisely 
alike  and  made  side  by  side  with  an  indenture  between  the 
two  that  could  be  cut  apart  so  that  it  would  make  a  zigzag 
boundary  or  indenture  or  cut  by  an  instrument,  so  it  could 
be  torn  apart  and  therein  identified  by  placing  the  zigzag 


FORMS  439 

portions  so  they  would  fit  precisely  together.  The  indentures 
cut  thus  apart  in  series,  possibly  caused  them  to  be  named 
"indentures,"  otherwise  than  that  the  word  "indenture"  gives 
it  no  other  significance)  : — 

FORM    55,  DEBENTURE. 

This  indenture,  dated  May  1,  1893,  between  the  Northern 
Pacific  Railroad  and  the  Farmers'  Loan  and  Trust  Company, 
.is  to  pay  off  a  floating  debt  of  about  $11,000,000,  and  for  other 
requirements ;  the  railroad  company  sells  its  five-year  six 
per  cent  gold  notes  to  an  aggregate  amount  of  $15,000,000. 
The  following  collateral  is  deposited  with  the  trust  com- 
pany :— 

$10,000,000  par  value  Northern  Pacific  consol*  five  per 
cent  bonds. 

$3,000,000  par  value  Chicago  and  Northern  Pacific  five  per 
cent  bonds. 

$6,000,000  par  value  Chicago  and  Calumet  five  per  cent 
bonds. 

$7,000,000  par  value  St.  Paul  and  Northern  Pacific  capital 
stock. 

$15,010,000  par  value  Chicago  and  Northern  Pacific  stock 
beneficial  certificates. 

$343,000  par  value  Northern  Pacific  Express  Company's 
stock. 

Article  1.  Notes  shall  be  $1,000  each,  payable  in  gold,  and 
may  be  registered. 

Article  2.  The  railroad  company  binds  itself  to  make  up 
deficiency  if  any,  after  sale  of  collateral. 

Article  3.  The  railroad  company  may  deliver  the  col- 
lateral from  time  to  time  and  receive  from  trust  company  a 
proportion  of  the  notes. 

Article  4.  The  railroad  company  will  not,  without  first 
obtaining  the  consent  of  the  committee,  or  until  all  the  notes 
are  paid,  construct  new  lines  or  purchase  or  lease  any,  or 
guarantee  bonds  of  other  companies  or  issue  its  own  bonds 
against  such. 

Article  5.  A  commiittee  is  formed  consisting  of  Messrs. 
R.  G.  Rolston,  John  A.  Stewart,  James  Stillman,  J.  D.  Probst, 


*Consol  is  an  abbreviation  of  the  words  "consolidated  an- 
nuities," used  to  designate  various  funds  united  in  one  to  pay 
a  debt. 


440  INDUSTRIAL     CORPORATIONS 

and  F.  T.  Gates.  Committee  shall  organize  and  appoint  a 
secretary.  Members  may  vote  in  person  or  by  letter  or  tele- 
gram, and  shall  receive  twenty  dollars  for  attendance  at  each 
meeting.  Majority  shall  be  a  quorum. 

Article  6.  Committee  may  sell  the  bonds  deposited  as  col- 
lateral from  time  to  time,  but  without  consent  of  the  railroad 
company  can  not  dispose  of  Northern  Pacific  5's  at  less  than 
90,  or  Chicago  and  Northern  Pacific  5's  at  less  than  95,  or  Cal- 
umet 5's  at  less  than  85.  The  coirimittee  has  power  to  sell  all 
other  collateral  at  times  and  prices  such  as  the  railroad  com-' 
pany  shall  direct  and  the  committee  approve.  With  the 
money  received  from  such  sales  the  trust  company  shall  pur- 
chase the  notes  in  the  open  market.  After  May,  1896,  the 
notes  can  be  called  for  paymtent  by  lot.  If  railroad  company 
shall  default  in  the  interest  for  ninety  days,  the  committee 
shall  sell  part  of  the  collateral  to  realize  such  interest,  or  at 
its  option  shall  have  power  to  declare  the  principal  due,  where- 
upon the  trust  company  shall  dispose  of  underlying  securities 
as  determined  by  the  committee.  In  such  case  committee 
may  fix  a  minimum  price. 

Article  7.  Upon  any  purchase  or  sale  of  any  coupons  be- 
longing to  these  notes,  or  upon  loans  made  after  date  of  ma- 
turity of  said  coupons,  such  coupons  shall  not  be  within  this 
indenture. 

Article  8.  All  the  notes  may  be  called  and  paid  by  the 
railroad  company  at  any  time  after  May  1,  1896,  at  par  and 
accrued  interest. 

Article  9.  The  committee  shall  vote  all  the  stock  among 
the  collateral.  Interest  on  the  bonds  shall  belong  to  the  rail- 
road company. 

Article  10.  The  Calumet  Terminal  Railway  Company, 
without  consent  of  the  committee,  shall  not  issue  any  more 
bonds,  but  upon  paym'ent  to  the  trust  company  of  $4,500,000, 
the  railroad  company  shall  have  the  right  of  withdrawing  these 
Calumet  bonds,  mpney  to  be  used  to  purchase  notes  in  open 
market. 

Article  11.  Railroad  company  and  trust  company  shall 
have  access  to  papers  and  accounts  of  committee,  and  commit- 
tee shall  have  like  access  to  books,  papers,  and  accounts  of 
railroad  company. 

Article  12.     Provides  for  continuance  of  a  trustee. 

Article  13.  When  notes  are  paid,  they  shall  be  cancelled 
and  delivered  to  the  railroad  company. 


FORMS  441 

Article  14.  The  railroad  company  will  do  all  necessary 
acts  to  carry  the  intent  of  the  parties  into  effect. 

Article  15.  Marginal  notes  in  the  indenture  not  to  affect 
the  text.  A  supplementary  agreement  provides  that  the  rail- 
road company  shall  not  sell  any  of  the  Northern  Pacific  5's 
which  it  may  have  in  its  treasury  at  less  than  90,  or  pledge  the 
sarnie  except  under  existing  contracts  without  consent  of  the 
committee. 

Debenture  stock  is  a  term  used  in  England  to  designate 
a  paper  that  is  similar  to  an  American  registered  bond.  It 
may  or  may  not  be  secured  by  mortgage.  A  mortgage  exe- 
cuted in  America  may  cover  bonds  in  America  and  debenture 
stock  in  England.  A  very  ingenious  and  successful  method 
for  providing  for  the  indebtedness  of  a  large  concern  was  in- 
vented by  the  author  of  "Cook  on  Corporations,"  and  will  be 
better  understood  by  a  quotation  from  the  author  himself: — 

This  Commercial  Cable  Company  mortgage  is  on  all  the 
company's  telegraph  and  cable  lines  in  America  and  Europe, 
including  the  telegraph  lines  of  the  Postal  Telegraph  Com- 
pany. The  mortgage  runs  for  five  hundred  years,  thereby 
making  it  practically  a  perpetual  investment,  as  desired  by  the 
English  investor.  It  secures  $20,000,000  of  bonds  and  deben- 
ture stock,  all  bearing  the  same  rate  of  interest,  four  per  cent. 
The  bonds  may  at  any  time  be  returned  to  the  company  and 
debenture  stock  obtained  in  place  thereof,  at  the  rate  of  £206 
for  every  $1,000  of  bonds.  The  bonds  are  listed  on  the  I^ew 
York  Stock  Exchange ;  the  debenture  stock  on  the  London 
Stock  Exchange.  The  aggregate  amount  of  bonds  and  de- 
benture stock  combined  is  always  exactly  $20,000,000.  The 
debenture  stock  is  drawn  in  accordance  with  English  forms; 
is  issued  in  amounts  of  one  pound  sterling  and  upward ;  is  in- 
tended solely  for  the  English  market,  and  contains  the  nec- 
essary English  features  of  being  practically  a  perpetual  invest- 
m<ent,  issued  in  small  or  large  denominations  to  suit  the  in- 
vestor, and  having  an  English  place  of  issue  and  transfer. 
This  $20,000,000  mass  of  debt  has  gradually  merged  itself  into 
the  English  debenture  stock,  owing  to  the  fact  that  a  good 
four  per  cent  security  sells  for  a  higher  price  in  England  than 
in  America.  Inasmuch  as  the  author  formulated  the  plan  and 
drew  the  mortgage  deed  of  trust,  bonds,  and  debenture  stock 
for  this  combined  English  and  American  security,  he  is  able 
to  certify  to  the  successful  working  of  the  plan,  and  is  able 


442  INDUSTRIAL     CORPORATIONS 

to  give  a  copy  of  the  certificate  issued  to  represent  the  de- 
benture stock,  as  follows: — 

Five  Hundred  Year  Four  Per  Cent 

Debenture  Stock. 
The  Commercial  Cable  Company. 

FORM    56,    DEBENTURE   STOCK,   ENGLISH. 

This  is  to  certify  that  is  the  registered  holder  of  .... 

pounds  sterling  of  the  debenture  stock  of  the  Commercial  Ca- 
ble Company,  issued  under  the  provisions  of  a  mortgage  deed 
of  trust  and  bearing  interest  at  the  rate  of  four  per  centum  per 
annum,  payable  quarterly,  free  of  all  United  States  taxes,  on 
the  first  days  of  January,  April,  July,  and  October,  in  each  year 
in  London,  England.  The  payment  of  the  principal  and  inter- 
est of  this  debenture  stock  is  secured  by  said  mortgage  deed  of 
trust,  dated  the  first  day  of  January,  1897,  and  made  by  the 
said  The  Commercial  Cable  Company  to  the  Farmers'  Loan 
and  Trust  Company  (of  the  city  of  New  York),  as  trustee,  by 
which  mortgage  deed  of  trust  all  the  franchises,  property,  and 
assets  of  the  Commercial  Cable  Company  (including  the  prop- 
erty, franchises,  and  assets  of  the  Postal  Telegraph  Cable 
Company  heretofore  acquired  by  said  The  Commercial  Ca- 
ble Company)  are  assigned  to  said.  The  Farmers'  Loan  and 
Trust  Company  upon  trusts  for  securing  twenty  million  dol- 
lars ($20,000,000)  bonds  or  their  equivalent  £4,120,000  sterling 
debenture  stock  of  the  issue. 

Instalments  of  interest  on  this  debenture  stock  are  to  be 
paid  by  checks  or  warrants  mailed  to  proprietors  at  their  ad- 
dresses registered  in  the  books  of  said  Cable  Company. 

The  stock  represented  by  this  certificate  is  transferable  on 
common  transfer  forms,  to  be  subsequently  registered  on  the 
books  of  the  company  in  London  or  New  York  or  at  the  of- 
fice of  such  financial  agents  in  London  as  said  Cable  Com- 
pany may  from  time  to  time  appoint,  and  in  conformity  with 
the  provisions  of  the  by-laws  in  that  behalf  upon  the  sur- 
render of  this  certificate.  No  transfer  for  any  sum  less  than 
one  pound  or  for  other  than  multiples  of  one  pound  will  be 
registered. 

This  certificate  shall  not  be  valid  unless  signed  by  such 
official  of  said  The  Commercial  Cab'e  Company  as  the  board 
may  from  time  to  time  appoint  for  that  purpose,  and  counter- 
signed by  the  registrar. 


FORMS  443 

Given  under  the  common  seal  of  the  company  this   .... 

day  of ,  190 

The  Commercial  Cable  Company, 

By  :.... 

Countersigned  in  London  this   ....   day  of   190.... 


Registrar. 

No  transfer  of  any  portion  of  this  stock  will  be  registered 
without  the  surrender  of  this  certificate. 
§  289.     Bond  Another  Form  for  Agent. 

Another  form  of  bond  suited  to  be  given  for  the  faithful 
performance  of  the  duties  of  an  agent  may  be  as  follows : — 

FORM   57,    BOND  FOR   FAITHFUL  PERFORMANCE  OF  CLERK. 

Know  All  Men  by  These  Presents:  That  we,  John  Smith 
and  John  Doe,  of  Troy,  Ohio,  are  held  and  firmly  bound  unto 
the  Northfield  Bank,  a  corporation  under  the  laws  of  Ohio,  in 
the  sum  of  one  thousand  dollars  to  be  paid  to  the  said  North- 
field  Bank,  its  successors  or  assigns ;  for  which  payment,  well 
and  truly  to  be  made,  we  bind  ourselves,  our  heirs,  executors, 
and  administrators  firmly  by  these  presents. 

Sealed  with  our  seals.  Dated  the  first  day  of  January,  one 
thousand  eight  hundred  and  ninety-four. 

The  condition  of  the  above  obligation  is  such  that,  whereas 
the  said  Northfield  Bank  has  employed  the  said  John  Smith 
as  a  clerk  in  its  business  of  banking.  Now,  if  the  said  John 
Smith  shall  well  and  faithfully  discharge  his  duties  as  such 
clerk,  and  shall  also  account  for  all  moneys  and  property,  and 
other  things,  which  may  come  into  his  possession  or  under 
his  control  as  such  clerk,  then  the  above  obligation  to  be 
void ;  otherwise  to  remain  in  full  force  and  virtue. 

(Signed)     John  Smith     (SEAL). 
John  Doe        (SEAL). 

FORM   58,    BOND  FOR  DEED. 

A  bond  for  a  deed  may  be  in  the  following  form : — 
Know  All  Men  by  These  Presents:  That  we,  F.  J.  Ma- 
guire  and  Thomas  B.  Noble,  of  the  County  of  Santa  Barbara, 
State  of  California,  are  held  and  firmly  bound  unto  F.  A. 
Thompson  Realty  Company,  a  corporation  under  the  laws  of 
California,  with  its  office  in  said  county  and  State,  in  the  sum 
of  five  thousand  two  hundred  and  fifty  dollars,  gold  coin  of 
the  United  States  of  America,  to  be  paid  to  the  said  F.  A. 
Thompson  Realty  Company,  its  successors  or  assigns,  for 


444  INDUSTRIAL     CORPORATIONS 

which  payment  well  and  truly  to  be  made,  we  bind  ourselves, 
our  heirs,  executors,  and  administrators,  jointly  and  severally, 
firmly  by  these  presents. 

Sealed  with  our  seals,  and  dated  the  twentieth  day  of  De- 
cember, one  thousand  eight  hundred  and  ninety-four. 

The  condition  of  the  above  obligation  is  such,  that  if  the 
above  bounden  obligors  shall,  on  or  before  the  third  day  of 
May,  one  thousand  nine  hundred  and  four,  make,  execute,  and 
deliver  unto  the  said  F.  A.  Thompson  Realty  Company  (pro- 
vided that  the  said  F.  A.  Thompson  Realty  Company  shall 
on  or  before  that  day  have  paid  to  the  said  obligors  the  sum 
of  two  thousand  seven  hundred  and  fifty  dollars  [$2,750], 
gold  coin  of  the  United  States  of  America,  the  price  by  said 
F.  A.  Thompson  Realty  Company  agreed  to  be  paid  therefor) 
a  good  and  sufficient  conveyance  of  grant,  bargain,  and  sale 
(or  in  fee  simple),  of  all  that  certain  lot,  piece,  or  parcel  of 
land  situate,  lying  and  being  in  the  town  of  Santa  Barbara, 
and  State  of  California,  and  bounded  and  described  as  fol- 
lows, to  wit : — 

(Description.) 

Then  this  obligation  to  be  void;  otherwise,  to  remtain  in 
full  force  and  virtue. 

(Signed)     F.  J.  McGuire, 

Thomas  J.  Noble. 

BOND  FOR  LOST  STOCK  REISSUE. 

A  form  of  bond  that  is  suitable  to  be  given  where  a  stock 
certificate  is  lost  or  stolen  or  otherwise  destroyed  and  a  new 
certificate  is  desired  by  the  owner,  may  be  as  follows: — 

FORM    59,  INDEMNITY  BCND.      FOR  REISSUED  CERTIFICATE  OF  STOCK. 

Know  AH  Men  by  These  Presents:  That  we,  Waldo 
Scott,  of  Reno,  Nev.,  as  principal,  and  Warwick  Dobbs,  of 
Fresno,  Cal.,  as  surety,  are  held  and  firmly  bound  unto  the 
Comstock  Native  Silver  Company,  a  corporation  duly  or- 
ganized under  the  laws  of  the  State  of  Utah,  its  successors 
or  assigns,  in  the  sum  of  one  thousand  dollars  ($1,000),  to 
the  payment  of  which  to  the  said  corporation,  its  successors 
or  assigns,  we  do,  by  these  presents,  jointly  and  severally 
bind  ourselves,  our  heirs,  executors,  and  administrators. 

Signed  and  sealed  this  first  day  of  May,  1904. 

The  condition  of  the  above  obligation  is  that: — 

Whereas,  The  said  Waldo  Scott,  the  owner  of  record  of 


FORMS  445 

twenty  (20)  shares  of  the  capital  stock  of  the  said  Comstock 
Native  Silver  Company,  of  the  par  value  of  $100  each,  has 
made  application  to  the  board  of  directors  of  the  said  com- 
pany for  the  issuance  to  him  of  a  new  certificate  for  the  said 
twenty  (20)  shares  of  stock,  alleging  that  the  original  cer- 
tificate, No.  500,  issued  to  him  therefor  on  the  21st  day  of 
May,  1901,  is  lost,  stolen,  or  destroyed,  and  that  its  present 
whereabouts  and  conditions  are  unknown  to  him ;  and, — 

Whereas,  The  said  application  has  been  granted,  and  the 
said  new  certificate  for  twenty  (20)  shares  of  the  stock  of  the 
Comstock  Native  Silver  Company,  pursuant  to  due  and  formal 
resolution  of  the  said  board  of  directors,  was  that  day  issued 
to  the  said  Waldo  Scott. 

Now,  therefore,  if  the  said  Waldo  Scott,  his  heirs,  exec- 
utors, or  administrators,  or  any  of  them,  do  and  shall,  from 
time  to  time,  and  at  all  times  hereafter,  save,  defend,  keep 
harmless,  and  indemnify  the  said  Comstock  Native  Silver  Com- 
pany, its  legal  successors  and  assigns,  of,  from,  and  against,  all 
demands,  claims,  or  causes  of  action,  arising  from  or  on  ac- 
count of  said  certificate  No.  500  for  twenty  shares  of  the  capi- 
tal stock  of  the  said  Comstock  Native  Silver  Company,  and 
of  and  from  all  costs,  damages,  and  expenses  that  shall  or  may 
arise  therefrom,  and  shall  also  deliver  or  cause  to  be  delivered 
up  to  the  said  Comstock  Native  Silver  Company,  the  said 
missing  certificate  No.  500  for  cancellation,  whenever  and  as 
soon  as  the  same  shall  be  found,  then  this  obligation  shall  be 
void ;  otherwise  to  remain  in  full  force  and  virtue. 

Signed,  sealed,  and  de-  Waldo  Scott  (L.  S.), 

livered  in  the  presence  of  Warwick  Dobbs  (L.  S.). 

A.  P.  Jenkins,  . 

Edward  Kent. 

§  290.     Bill  of  Sale. 

A  bill  of  sale  is  a  writing  referring  to  personal  property 
and  not  to  an  instrument  under  seal,  and  so  far  as  the  author 
has  been  able  to  discover,  is  not  a  paper  usually  that  is  re- 
quired to  be  acknowledged  and  recorded.  It  may  be  in  a 
simple  form  or  it  may  be  extended. 

FORM    60,    BILL  OF  SALE  SIMPLE. 

A  simple  form  of  bill  of  sale  may  be  as  follows : — 
In  consideration  of  one  hundred  and  thirty  dollars,  to  im- 
in  hand  paid  by  ....  Company,  I  hereby  sell  and  deliver  to 


446  INDUSTRIAL     CORPORATIONS 

it  my  broncho  horse,  Sir  Thomas  Lipton,  branded  "H.  H.  T." 
on  the  left  hip. 

(Date.)  John  Doe. 

FORM    61,    BILL  OF   SALE   CORPORATION. 

Know  All  Men  by  These  Presents :  That  the Com- 
pany, a  corporation  duly  organized  under  the  laws  of  the 
State  of  ....,  with  its  principal  office  and  place  of  business 
at  . . . .,  . . .  . ,  in  the  city  of  .  . .  .,  in  consideration  of  the  sum 
of  ....  dollars  ($....),  to  it  paid  by  the  ....  Company  of 
.  .  .  .,  the  receipt  whereof  is  hereby  acknowledged,  does  hereby 
sell,  transfer,  and  assign  to  the  said  ....  Company,  the  fol- 
lowing goods  and  chattels,  viz. : — 

All  of  the  machinery,  tools,  and  apparatus  mentioned  and 
specified  in  the  annexed  schedule  and  now  in  the  factory 
building  at  .  . .  .,  ....  Street,  .  . .  .  ; 

To  have  and  to  hold,  all  and  singular,  the  said  goods  and 
chattels  to  the  said  ....  Company,  its  successors  and  assigns 
to  their  use  and  behoof  forever; 

And  the  said  ....  Company  does  hereby  covenant  with  the 
said  grantee  that  the  said  ....  Company  is  the  lawful  owner 
of  said  goods  and  chattels ;  that  they  are  free  from  all  liens ; 
that  it  has  good  right  to  sell  the  same  as  aforesaid ;  and  that 
it  will  warrant  and  defend  the  same  against  the  lawful  claims 
and  demands  of  all  persons. 

In  Witness  Whereof,  the  said  ....  Company  has  caused 
its  corporate  name  to  be  signed  hereunto  by  its  president,  and 
its  corporate  seal  to  be  affixed  and  duly  attested  by  its  sec- 
retary, said  corporate  seal  being  affixed  both  to  these  presents 
and  to  the  schedule  hereunto  annexed,  all  being  done  in  the 
city  of  .  . .  .,  of  this  the day  of  . .,  190. . . . 

(Corporate  Seal)  The Company, 

(Attest  Seal)  By  , President. 

,  Secretary. 

§  291.     Bills  of  Exchange. 

A  bill  of  exchange  is  a  written  order  from  one  person  to 
another,  ordering  him'  to  pay  to  a  third  a  sum  of  money  named. 

1.  The  first  person  is  called  the  drawer  of  the  bill. 

2.  The  second  person  is  called  the  drawee. 

3.  The  third  person  is  called  the  payee. 

4.  When  the  second  party,  or  the  one  directed  to  pay,  has 
agreed  to  pay  the  bill,  he  is  said  to  have  accepted  the  bill  and 
is  called  the  acceptor. 


FORMS  447 

5.  The  bill  may  be  in  form  negotiable,  "to  order  or  to 
bearer;"  it  will  then  pass  from  hand  to  hand  in  the  usual 
form  with  or  without  endorsement.  To  order  must  be  en- 
dorsed by  blank  or  full  endorsement. 

7.  Bills  are  inland  or  foreign.    Inland  bills  are  those  within 
the  same  State.     Foreign  are  those  between  States  or  nations 
independent  of  each  other. 

8.  A  bill  of  exchange  must  be  in  writing,  be  dated,  state 
the  place  of  making,  sum  to  be  paid,  time  of  payment.    If  no 
time  is  stated,  bill  is  payable  on  demand.     Must  demand  as  a 
right  and  not  as  a  favor,  the  absolute  and  not  contingent. 
Addressed  in  full  name  of  the  drawer  or  style  of  firm  or  corpo- 
ration, and  subscribed  by  the  drawer,  and  payable  in  money. 

FORM   62,    BILL  OF  EXCHANGE  GENERAL. 

$ Place Date 

....  days  (or  months)  after  sight  (or  date)  pay  to  C.,  or 
order,   ....   dollars,  value  received   (on  account  of   ....,  or, 
and  charge  to  the  account  of). 
To  Be.  (at)    A. 

Bills  of  exchange  may  be  at  sight  or  after  date. 

§  292.     Power  of  Attorney. 

A  power  of  attorney  is  an  authority  in  writing  given  by 
a  person  or  corporation  to  an  individual  or  corporation  to 
transact  either  general  or  special  business  as  the  instrument 
designates.  One  acting  under  the  power  of  attorney  is  merely 
an  agent,  either  general  or  special.  The  rule  as  to  the  limit 
of  the  agent's  power  to  execute  instruments  for  and  on  behalf 
of  his  principal  is  that  the  agent  can  go  no  further  than  the 
power  given  him  by  the  instrument  under  which  he  operates. 
He  must  have  as  high  authority  as  the  instruments  he  exe- 
cutes; that  is  to  say,  if  he  executes  a  sealed  instrument,  his 
power  of  attorney  must  be  under  seal.  If  a  deed,  mortgage, 
or  other  instrument  is  to  be  executed,  they  being  instruments 
under  seal,  or  so  called  scaled  instruments,  then  the  power 
of  attorney  must  be  acknowledged  and  sealed ;  in  other  words, 
the  power  of  attorney  must  be  as  solemn  an  instrument  as 
the  instrument  to  be  executed  or  made. 


448  INDUSTRIAL     CORPORATIONS 

A  general  power  of  attorney  to  execute  any  and  all  in- 
struments signed,  sealed,  and  acknowledged,  is  sufficient  to 
empower  the  agent  to  create  all  instruments  from  the  most 
solemn  deed  to  the  simplest  due  bill,  while  a  power  of  at- 
torney, if  acknowledged  or  under  seal,  even  though  general 
in  its  language,  would  not  authorize  the  attorney  in  fact  or 
agent  to  execute  a  sealed  instrument. 

A  power  of  attorney  usually  has  a  clause  of  revocation. 
This  means  that  the  giver  of  the  power  of  attorney  has  and 
reserves  the  right  to  revoke  the  power  of  attorney  at  any  time. 

Powers  of  attorney  sometimes  have  the  clause  of  substi- 
tution. This  means  that  the  attorney  or  agent  has  the  right 
to  substitute  another  in  his  place  and  stead  or  to  himself 
grant  powers  of  attorney. 

A  general  power  of  attorney  may  be  as  follows : — 

FORM   63,    GENERAL  POWER  OF  ATTORNEY. 

Know  All  Men  by  These  Presents:  That  the  Arizona 
Land  and  Cattle  Company,  a  corporation  organized  under  the 
laws  of  Arizona,  with  its  principal  office  at  Phoenix,  Ariz,, 
have  made,  constituted,  and  appointed,  and  by  these  presents 
do  make,  constitute,  and  appoint  James  Simpson,  of  said 
city  and  county,  its  true  and  lawful  attorney  for  it,  and  in  its 
name,  place,  and  stead,  and  for  its  use  and  benefit,  to  ask,  de- 
mand, sue  for,  recover,  collect,  and  receive  all  such  sums  of 
money,  debts,  dues,  accounts,  legacies,  bequests,  interests, 
dividends,  annuities,  and  demands  whatsoever  as  are  now  or 
shall  hereafter  become  due,  owing  payable,  or  belonging  to 
it,  and  have,  use,  and  take  all  lawful  ways  and  means  in  its 
name  or  otherwise  for  the  recovery  thereof  by  attachments, 
arrests,  distress,  or  otherwise,  and  to  compromise  and  agree 
for  the  same,  and  acquittances,  or  other  sufficient  discharges 
for  the  same  for  it,  and  in  its  name,  to  make,  seal,  and  deliver ; 
to  bargain,  contract,  agree  for,  purchase,  receive,  and  take 
lands,  tenements,  hereditaments,  and  accept  the  seisin  and 
possession  of  all  lands,  and  all  deeds  and  other  assurances,  in 
the  law  therefor,  and  to  let,  lease,  demise,  bargain,  sell,  re- 
mise, release,  convey,  mortgage,  and  hypothecate  lands,  tene- 
ments, and  hereditaments,  upon  such  terms  or  conditions,  and 
under  such  covenants,  as  he  shall  think  fit.  Also,  to  bargain 
and  agree  for,  buy,  sell,  mortgage,  hypothecate,  and  in  any 


FORMS  449 

and  every  way  and  manner  deal  in  and  with  goods,  wares,  and 
merchandise,  choses  in  action,  and  other  property  in  posses- 
sion or  in  action,  and  to  make,  do,  and  transact  all  and  every 
kind  erf  business  of  what  nature  or  kind  soever,  and  also  for 
it  and  in  its  name,  and  as  its  act  and  deed,  to  sign,  seal,  exe- 
cute, deliver,  and  acknowledge  such  deeds,  leases,  and  assign- 
ment of  leases,  covenants,  indentures,  agreements,  mortgages, 
hypothecations,  bottomries,  charter  parties,  bills  of  lading, 
bills,  bonds,  notes,  receipts,  evidences  of  debt,  releases,  and 
satisfaction  of  mortgage,  judgment  and  other  debts,  and  such 
other  instruments  in  writing  of  whatever  kind  and  nature  as 
may  be  necessary  or  proper  in  the  premises. 

Giving  and  granting  unto  its  said  attorney  full  power  and 
authority  to  do  and  perform  all  and  every  act  and  thing  what- 
soever requisite  and  necessary  to  be  done  in  and  about  the 
premises,  as  fully  to  all  intents  and  purposes  as  it  might  or 
could  do,  with  full  power  of  substitution  or  revocation,  hereby 
ratifying  and  confirming  all  that  its  said  attorney,  or  his  sub- 
stitute or  substitutes,  shall  lawfully  do  or  cause  to  be  done 
by  virtue  of  these  presents. 

In  Witness  Whereof,  The  president  of  the  said  The  Arizona 
Land  and  Cattle  Company  has  hereunto  signed  its  corporate- 
name  and  affixed  the  seal  of  the  said  corporation,  all  in  the 
city  of  Phoenix,  Arizona  Territory,  this  1st  day  of  May,  A.  D. 
1905. 

(Signed)     The  Arizona  Land  and  Cattle  Company. 

(L.  S.)  By  C.  E.  Bull, 

Attest:    C.  H.  Davis,  President. 

Secretary. 

Such  power  of  attorney  as  the  above  empowering  the  agent 
to  convey  land  would  have  to  be  acknowledged  by  the  presi- 
dent to  entitle  it  to  record,  as  a  conveyance  made  under  it 
would  necessarily  show  that  it  was  made  by  an  attorney  in 
fact,  and  this  becomes  a  part  of  the  chain  of  title. 

(See  acknowledgment  forms  of.) 

FORM    64,   POWER  OF  ATTORNEY  TO  VOTE  PROXY. 

(This  is  not  a  sealed  instrument,  and  needs  only  the  sig- 
nature of  the  giver.) 

Know  All  Men  by  These  Presents:  That  I,  Emos  Rody, 
do  hereby  constitute  and  appoint  Bartlett  Tripp  my  true  and 
lawful  attorney,  for  me/and  in  my  name,  place,  and  stead,  to 

30 


450  INDUSTRIAL     CORPORATIONS 

vote  as  my  proxy  at  the  annual  meeting  of  the  stockholders 
of  the  Light  Falls  Power  Company,  on  certificate  Nos.  1  to 
1,000,  both  inclusive,  for  the  election  of  trustees  and  trans- 
action of  other  business,  to  be  held  on  the  1st  day  of  January, 
1905,  and  according  to  the  number  of  votes  to  which  I  would 
be  entitled  if  personally  present  with  full  power  of  substitu- 
tion and  revocation. 

Witness  my  hand  and  seal  June  1st,  A.  D.  1904. 

Emos  Rody. 

FORM   65,  PROXY  LONG  FORM. 

Shares:     Preferred Common   

Know  All  Men  by  These  Presents:  That  . . . .,  the  under- 
signed stockholders  in  ....  Company,  hereby  constitute  .... 
and  appoint  ....  (or  any  other  of  them),  with  the  power  to 
substitute  an  attorney  or  attorneys  in  their  place  and  stead, 
lawful  agents  and  attorneys  of  the  undersigned,  for  and  in 
the  name  and  stead  of  the  undersigned  to  appear  and  to  vote 
in  respect  of  all  common  stock  and  preferred  stock,  or  either, 
held  by  the  undersigned,  at  the  special  meeting  of  the  stock- 
holders of  said  company,  to  be  held  at  ....  city,  on  the  .... 
day  of  . .. .,  A.  D.  1904  (including  any  adjournment  thereof), 
for  the  purpose  of  considering,  voting,  and  acting  upon  a  pro- 
posed amendment  of  the  articles  of  association  or  charter  of 
said  company,  increasing  its  preferred  capital  stock  by  the 
amount  of  .  . .  .,  and  its  common  capital  stock  by  the  amount 
of  .  ..  .,  and  of  authorizing  the  issue  of  such  additional  pre- 
ferred and  common  stock,  and  of  taking  all  suitable  action  in 
that  behalf;  and  also  for  and  in  the  name  and  stead  of  the 
undersigned  to  appear  and  to  vote  in  respect  of  all  common 
stock  and  all  preferred  stock,  or  either,  held  by  the  under- 
signed, at  the  annual  meeting  of  the  stockholders  of  said 
company,  to  be  held  at  ....  city,  ....  State,  on  the  ....  day 

of    ....,   A.    D (including   adjournment   thereof),   for 

the  purpose  of  electing  directors  of  said  company  and  for  the 
transaction  of  any  other  business  which  may  come  before  the 
said  meeting;  with  power,  in  the  name  and  on  behalf  of  the 
undersigned  to  vote  at  said  special  meeting  and  at  said  annual 
meeting  upon  any  and  all  questions  and  matters  included  in 
or  relating  to  the  objects  of  said  special  meeting  o'r  of  said  an- 
nual meeting  as  though  the  undersigned  were  personally  pres- 
ent and  voting.  Authority  is  hereby  given  that  any  of  said 
attorneys  or  their  substitutes  may  act  in  the  absence  of  the 
others. 


FORMS  451 

In  witness  whereof, have  hereunto  set hand 

and  seal  ....  this  ....  day  of  .... 

Witness:    (SEAL) 

REVOCATION  OF  ATTORNEY. 

If  power  of  attorney  is  under  seal,  acknowledged  and  re- 
corded, a  revocation  thereof  would  have  to  be  under  seal,  ac- 
knowledged and  recorded,  and  unless  the  paper  was  given 
for  the  purpose  of  executing  sealed  instruments,  it  -would  not 
be  necessary  to  be  acknowledged  and  recorded,  and  its  revo- 
cation would  necessarily  not  have  to  be  acknowledged  and 
recorded.  A  revocation  of  the  power  of  attorney  may  be  in 
the  following  form: — 

FORM  66,    REVOCATION  OF  POWER  OF  ATTORNEY. 

Know  All  Men  by  These  Presents:  That  whereas  I,  . . . ., 
of  the  city  of  . . . .,  county  of  . . . .,  State  of  . . . .,  in  and  by 
my  letter,  warrant,  or  power  of  attorney,  in  writing,  bearing 
date  the  ....  day  of  . . .  .,  190. . .  .,  did  make,  constitute,  and 
appoint  ....,  of  said  city,  my  true  and  lawful  attorney,  for 
the  purposes  and  with  the  powers  therein  set  forth,  as  will 
more  fully  and  at  large  appear  by  reference  thereto,  or  to  the 
record  thereof,  made  on  the  said  ....  day  of  ....  ,190. . .  .,  in 
Book  . . .  .,  of  Powers  of  Attorney,  page  . . . .,  in  the  office  of 
the  county  recorder  of  the  said  county  of  .... 

Now,  therefore,  I,  the  said  ....,  for  divers  good  causes 
and  considerations  to  me  hereunto  moving,  have  revoked, 
countermanded,  annulled,  and  made  void,  and  by  these  pres- 
ents do  revoke,  countermand,  annul,  and  make  void,  the  said 
letter,  warrant,  or  power  of  attorney,  and  all  power  and  au- 
thority thereby  given,  or  intended  to  be  given,  to  the  said.  . . 

In  Witness  Whereof;  etc. 

SUBSTITUTION. 

The  substitution  of  an  attorney  in  fact  would  be  an  agent 
created  by  the  attorney  in  fact,  and  it  would  follow  that  if  the 
substituted  agent  would  have  the  authority  from  the  attorney 
in  fact  to  execute  sealed  instruments,  his  authority  would  be 
under  seal,  acknowledged  and  recorded,  and  the  revocation 
of  his  authority  would  be  by  a  like  instrument. 

FORM   67,    PRACTICAL   FORM   OF   POWER. 

A  very  short  and  practical  form  of  power  of  attorney  to 


452  INDUSTRIAL     CORPORATIONS 

transact  ordinary  business  may  be  as  follows: — 

Be  it  known  that  The  Tula  Swine  Company,  a  corporation 
formed  under  the  laws  of  Arizona,  with  its  place  of  business 
at  Yuma,  Ariz.,  hereby  constitute  and  appoint  Wm.  Cody  to 
be  its  attorney  in  fact,  with  full  authority  to  make  all  con- 
tracts, and  do  all  acts  of  a  business  nature,  except  the  con- 
veyance of  real  estate  as  effectually  as  it  could  itself  do,  and 
if  need  be,  to  substitute  another  attorney  in  his  place  with 
equal  powers;  and  it  does  hereby  ratify  and  confirm  all  acts 
lawfully  done  in  pursuance  of  this  power. 

Witness  its  signature  and  seal,  this  1st  day  of  January, 
A.  D.  1904,  as  signed  by  its  president  and  its  seal  affixed  by  its 
secretary  at  Leavenworth,  Kan. 

(Corporate  Seal)  The  Tula   Swine   Company, 

(Attest  Seal)  By  J.  A.  Dines,  President. 

Sam  Hartmen,  Secretary. 

§  293.    Acknowledgments. 

Acknowledgments  to  deed  and  other  instruments  under 
seal  were  unknown  at  common  law,  being  a  statutory  pro- 
vision. The  statutes  of  the  various  States  must  be  looked  to 
for  the  particular  enactment  of  its  own  locality.  A  general 
form  for  all  States  would  make  a  cumbersome  instrument  in 
and  of  itself.  Some  States  require  acknowledgments  to  be 
sworn  to.  The  purpose  of  an  acknowledgment  is  to  prepare 
the  instrument  for  record  so  there  can  be  no  doubt  about  the 
genuineness  of  it,  and,  as  far  as  possible,  close  the  door  of 
fraud. 

FORM   68,    ARIZONA   FORM   ACKNOWLEDGMENT. 

Territory  of  Arizona 


County  of j  SS< 

Before  me  (here  insert  the  name  and  character  of  the  of- 
ficer) on  this  day  personally  appeared  .  .  .  .,  known  to  me  (or 
proved  to  me  on  the  oath  of  ....),  to  be  the  president  of  the 
corporation  that  executed  the  within  instrument,  and  acknowl- 
edged to  me  that  such  corporation  executed  the  same  for  the 
purpose  and  consideration  therein  expressed. 

Given  under  my  hand  and  seal  of  office,  this  ....  day  of 
....,  A.  D.  190.... 

(L.  S.)  Joseph  Baldwin, 

Notary  Public. 

My  commission  expires  on  10th  day  of  January,  A.  D.  1908. 


FORMS  453 

FORM    69,  ACKNOWLEDGMENT  NEW  JERSEY. 

An  approved  form  for  the  State  of  New  Jersey  is  as  fol- 
lows : — 
State  of  New  Jersey       ) 

County  of  Essex       $  ss* 

Be  it  remembered  that  on  this,  the  sixth  day  of  February, 
.one  thousand  nine  hundred  and  four,  before  a  master  of  the 
Court  of  Chancery  of  the  State  of  New  Jersey,  personally  ap- 
peared Robert  J.  Johnson,  to  me  known,  who,  being  by  me 
duly  sworn,  according  to  law,  doth  depose  and  make  proof  to 
my  satisfaction  that  he  knows  the  corporate  seal  of  the  El 
Dorado  Copper  Company,  the  grantor  in  the  foregoing  deed 
named ;  that  the  seal  affixed  to  said  deed  is  the  proper  cor- 
porate seal  of  said  company ;  that  Thomas  K.  Edwards  was  at 
the  time  of  the  execution  of  said  deed  the  president  of  said 
company,  and  that  the  said  deed  was  signed,  sealed,  and  de- 
livered by  him  as  such  president,  in  the  presence  of  the  said 
deponent,  as  the  voluntary  act  and  deed  of  said  company,  and 
the  said  deponent  thereupon  subscribed  his  name  as  a  witness 
thereto.  All  of  which  I  certify. 

Waldo  P.  Johnson, 
Master  in  Chancery, 

Of  New  Jersey. 

FORM    70,   NEW  JERSEY  PROOF  OF  CORPORATE  INSTRUMENT. 

State  of  New  Jersey  ) 

County  of  j  s 

Be  it  remembered  that  on  the  ....  day  of  .....  in  the  year 
of  our  Lord,  one  thousand  nine  hundred  and  .  . .  .,  before  me, 
a  master  of  the  Court  of  Chancery  of  the  State  of  New  Jersey, 
personally  appeared  ....',  to  me  known,  who  being  by  me 
duly  sworn  according  to  law,  on  his  oath  doth  depose  and  say : 
That  he  is  the  secretary  (or  other  officer,  or  is  acquainted  with 
the  seal)  of  the  corporation,  the  grantor  in  the  foregoing  deed 
named ;  that  the  seal  affixed  to  the  said  deed  is  the  corporate 
seal  of  the  said  corporation,  that  ....  is  the  president  (or 
other  executive  officer)  of  the  corporation  ;  that  he  saw  the 
said  ....  as  such  ....  sign  the  said  deed,  and  heard  him  de- 
clare that  he  signed,  sealed,  and  delivered  the  same  as  the 
voluntary  act  and  deed  of  the  said  ....  by  its  order;  and  that 
this  deponent  signed  his  name  thereto,  at  the  same  time,  as 
subscribing  witness. 

Subscribed  and  sworn  to  before  me,  the  day  and  year  above 
written. 


454  INDUSTRIAL     CORPORATIONS 

In  Witness  Whereof,  The  said  X.  Y.  Z.  Company  has 
caused  these  presents  to  be  signed  by  its  president,  sealed  with 
its  corporate  seal,  and  attested  by  its  secretary  the  day  and 
year  first  above  written. 

(Corporate  Seal)  X.  Y.  Z.  Company. 

Attest By , 

Secretary.  President. 

Subscribed  and  sworn  to. me  this  1st  day  of  January,  A.  D. 
1904.  John  Brown, 

Notary  Public. 

FORM   71,    NEW  YORK  FORM  ACKNOWLEDGMENT. 

State  of  New  York  ) 

County  of i  s 

On  the  ....  day  of  .  . . . ,  in  the  year  . . . . ,  before  me  per- 
sonally came  .  . .  .,  to  me  known,  who  being  by  me  duly  sworn, 
did  depose  and  say  that  he  resided  in  .  . .  .  ;  that  he  is  the.  . . . 
of  the*  corporation  described  in  and  which  executed  the  above 
instrument;  that  he  knew  the  seal  of  said  corporation;  that 
the  seal  affixed  to  said  instrument  was  such  corporate  seal ; 
that  it  was  so  affixed  by  order  of  the  board  of  directors  of 
said  corporation,  and  that  he  signed  his  name  thereto  by  like 
order. 

Signature  of  office  or  officer  making  the 

affidavit  of  acknowledgment. 
§  294.    Affidavit. 

A  corporation  can  not  in  and  of  itself  make  an  affidavit, 
and  where  an  affidavit  is  required,  it  must  be  made  by  some 
officer  of  the  corporation  who  is  acquainted  with  the  facts. 
This  is  usually  done  by  the  president,  secretary,  or  treasurer, 
or  general  manager,  as  the  case,  may  be,  the  form  varying  ac- 
cording to  whoever  makes  the  affidavit.  The  treasurer  is 
sometimes  required  to  make  an  affidavit  as  to  the  financial 
statement.  His  affidavit  may  be  in  the  following  form  :— 

FORM  72,  TREASURER'S  AFFIDAVIT  TO  FINANCIAL  STATEMENT. 

State  of  New  York  ) 

County  of  New  York    )  b 

On  this  18th  day  of  March,  1904,  personally  appeared  be- 
fore me,  a  notary  public  in  and  for  the  county  of  New  York, 
Russell  Sage,  treasurer  of  the  Hocking  Valley  Coal  Company, 
who,  being  duly  sworn,  did  depose  and  say  that  he  has  full 


FORMS  455 

charge  and  control  of  the  books  and  accounts  of  said  com- 
pany; that  the  above  and  foregoing  statement  is  taken  from 
said  books  and  accounts;  that  it  is  a  true,  accurate  transcript 
therefrom,  and  that,  to  the  best  of  his  knowledge  and  belief,  it 
is  a  just  and  correct  presentation  of  the  financial  condition  of 
said  company  on  this  date. 

Russell  Sage, 

Treasurer. 

Sworn  to  and  subscribed  before  me  the  day  and  year 
aforesaid. 

Rice  Hix, 

(Notarial  Seal)  Notary  Public 

for  New  York  County. 
AFFIDAVIT  CORPORATION.  . 

About  the  only  difference  between  an  affidavit  of  a  cor- 
poration made  by  one  of  its  officers  and  the  ordinary  affidavit 
of  an  individual  is  that  the  officer  who  makes  the  affidavit  for 
the  corporation  mjust  state  in  the  body  of  the  affidavit  his 
official  character,  that  is,  he  must  state  that  he  is  the  secretary, 
treasurer,  president,  or  general  manager,  as  the  case  may  be, 
and  that  he  knows  the  facts  and  that  he  makes  the  affidavit 
for  the  corporation  and  on  its  behalf  as  such  officer.  A  very 
common  form  of  affidavit  and  which  may  be  changed  with  very 
little  thought  to  the  affidavit  of  a  corporation  may  be  as 
follows : — 

FORM    73,    AFFIDAVIT  CORPORATION. 

State  of  

County  of 

John  Doe,  of  ....,  in  said  county  and  State,  being  duly 
sworn,  says:  That  (here  state  the  facts,  or,  if  the  matters 
embraced  in  the  affidavit  are  not  within  the  affiant's  knowl- 
edge, but  have  been  communicated  to  him  by  others  in  whose 
assertions  he  places  confidence,  then  say :  That  he  is  informed 
and  believes  it  true,  that, — stating  what  he  has  been  informed 
of.) 

Subscribed  and  sworn  to  before  me  this 

....  day  of  ....  A.  D.  190 John  Doe, 

(Notarial  Seal)  Notary  Public. 

STRICT  RULES  WITH  SECRETARY. 

Sometimes  in  large  corporations  the  rules  and  regulations 


Jss. 


456  INDUSTRIAL     CORPORATIONS 

are  very  strict,  and  the  secretary  is  required  to  make  affidavit 
to  the  publication  of  notice  of  meeting  and  various  other  mat- 
ters.    The  affidavit  to  publication  of  notice  may  be  as  fol- 
lows : — 
FORM  74,  SECRETARY'S  AFFIDAVIT  TO  PUBLICATION  OF  NOTICE  OF 

MEETING. 

State  of  New  York  ) 

County  of  New  York   ) 

On  this  1st  day  of  January,  1904,  before  me  personally  ap- 
peared Eli  Seely,  secretary  of  the  Sonora  Guano  Company, 
who,  being  duly  sworn,  did  depose  and  say  that  the  annexed 
notice  was  published  in  the  Phoenix  Gazette  on  the  1st  day 
of  January,  1904,  and  on  the  20th  day  of  January,  1904. 

Eli  Seely, 
Secretary. 

Sworn  to  and  subscribed  before  me  the  day  and  year  afore- 
said. 

S.  P.  Galen, 
Notary  Public  in  and  for 

(Notarial  Seal)  the  County  of  New  York. 

§  295.     Notes  Promissory.  , 

Corporations,  like  individuals  doing  business,  issue  notes. 
The  only  immediate  distinction  between  the  note  of  an  in- 
dividual and  the  note  of  a  corporation  is  that  the  name  of  the 
corporation  is  inserted  in  the  body  of  the  note,  and  that  it  is 
signed  by  the  corporation.  It  should  always  be  signed  by  the 
corporate  signature  and  not  by  the  officers  with  their  official 
signature.  It  is  not  a  sealed  instrument.  There  are  various 
kinds  of  notes,  and  like  any  other  contract,  there  may  be  ap- 
pended any  agreement  thereto  that  the  contracting  parties  see 
fit  to  incorporate. 

A  short  form  of  a  note  may  be  as  follows: — 

FORM    75,    CORPORATE    NOTE.       SIGNATURE    BY    PRESIDENT. 

$1,000  (State)       (Date) 

Sixty  days  after  date  the  Green  Tree  Oil  Company  promises 
to  pay  to  the  order  of  F.  O.  Curry  the  sum  of  one  thousand 
dollars.  Value  Received. 

Green  Tree  Oil  Company. 
By  Louis  Malory, 

President. 


FORMS  457 

FORM    76,   CORPORATE  NOTE. 

$ (Place)       (Date) 

For  value  received,  the  X.  Y.  Z.  Company,  a  corporation, 
organized  and  existing  under  the  laws  of  the  State  of  Califor- 
nia, and  having  its  principal  place  of  business  at  Book  County, 
California,  promises  to  pay  to  the  Lipton  Bank  or  order,  one 
day  after  date,  without  grace,  five  thousand  dollars  at  the 
office  of  said  Lipton  Bank,  in  the  city  of  Fresno,  State  of 
California,  with  interest  from  date  until  paid,  at  the  rate  of 
twelve  per  cent  per  annum,  interest  payable  monthly,  and  if 
not  so  paid  to  be  compounded  monthly ;  all  payments  of  prin- 
cipal and  interest  to  be  made  only  in  gold  coin  of  the  govern- 
ment of  the  United  States  of  America. 

X.  Y.  Z.  Company. 
(Corporate  Seal)  By  J.  W.  Williams, 

President. 
By  Wiley  Jones, 

Secretary. 

FORM    77,   COLLATERAL  NOTE  WITH   POWER  OF  PURCHASE  AND 
MARGINAL  GUARANTEE. 

$ (Place)        (Date) 

....  after  date,  ....  promise  to  pay  to  the  order  of  .... 
....  dollars  for  value  received,  without  defalcation,  hereby 
waiving  all  right  to  stay  of  execution  and  exemption  of  prop- 
erty in  any  suit  in  this  note. 

As  collateral  security  ....  have  delivered  ....  which  .... 
hereby  authorize  and  empower  the  holder  hereof,  on  default 
in  payment  at  maturity,  with  a  view  to  its  liquidation,  and  of 
all  interest  and  costs  thereon  to  sell  and  transfer,  in  whole  or 
in  part,  without  any  previous  demand  upon  or  notice  to  .  . . ., 
either  at  brokers'  board  or  at  public  or  private  sale,  with  the 
right  of  becoming  the  purchaser  and  absolute  owner  thereof, 
free  of  all  trusts  and  claims,  should  such  sale  be  made  at 
brokers'  board,  or  be  public.  Furthermore,  ....  agree  that 
so  often  as  the  market  price  of  these  and  subsequently  de- 
posited securities  shall,  before  maturity  of  this  note,  fall  to  a 
price  insufficient  to  cover  its  amount,  with  ....  per  cent  mar- 
gin added  thereto-  ....  will,  on  demand,  within  two  hours 
thereafter,  deposit  with  the  holder  additional  security,  to  be 
approved  by  said  holder,  sufficient  to  cover  said  amount  and 
margin ;  and  that,  in  default  thereof  this  note  shall  become 
instantly  due  and  payable  precisely  as  though  it  had  actually 
matured,  and  all  the  foregoing  rights  to  sell  and  transfer  col- 


458  INDUSTRIAL     CORPORATIONS 

laterals  shall  at  once  be  exercisable,  at  ....  risk,  in  case  of  any 
deficiency  in  realizing  proceeds. 

§  296.     Check  by  Corporation. 

The  signing  of  checks  by  a  corporation  is  the  same  as  the 
signature  to  any  other  written  instrument  or  contract.  Cor- 
porate or  official  signatures  may  be  used,  though  it  is  far  bet- 
ter to  use  the  corporate  signature.  It  is  likewise  sometimes 
provided  that  checks  given  by  a  corporation  should  be  counter- 
signed. A  check  like  any  other  contract,  will  not  be  invali- 
dated by  an  insertion  on  the  face  of  the  check  of  the  purpose 
for  which  the  check  is  given.  For  instance,  a  check  given  in 
payment  for  rent  for  a  certain  place,  building,  or  room,  or 
whatever  it  may  be  given  for,  may  state  on  the  face  of  it  to 
that  effect.  If  this  is  done,  the  check  not  only  furnishes  a 
means  of  payment,  but  it  also  takes  the  place  of  a  receipt  or 
voucher,  showing  just  what  the  check  was  given  for,  and 
when  it  is  endorsed  by  a  payee,  it  also  shows  as  a  matter  of 
evidence,  that  it  must  have  been  understood  by  the  receiver 
of  the  check  that  he  took  it  for  the  purpose  and  consideration 
stated  on  the  face  of  the  check. 

FORM   78,   CHECK  COMMON. 

A  common  form  of  a  check  with  a  corporate  signature  may 
be  as  follows: — 

Check  Corporate  Signature 

No (Place)        (Date) 


Bank, 

No ,    Street. 

Pay  to  the  order  of  .  . . . ; ,  $ 

; Dollars. 

The  Vulture  Mining  Company, 

J.  M.  Taber,  President, 
John  Grigsby,  Treasurer. 

FORM   79,    CORPORATE   CHECK. 
A  corporate  check,  countersigned,  may  be  as  follows : — 

No (Place)        (Date) 

The    Bank, 

of  the  city  of 


FORMS  459 

Pay  to  the  order  of  $ 

Dollars. 

Company. 

Countersigned,  By 

,  Treasurer. 

President. 

SIGNING   NAME   BY  RUBBER   STAMP. 

To  facilitate  the  signing  of  the  corporate  name,  it  is  easy  to 
provide  a  rubber  stamp. 

§  297.     Leases. 

Leases  are  conveyances  of  an  interest  in  real  estate.  It 
may  be  by  parol  or  in  writing.  Any  permissive  occupation  is 
within  the  scope  of  a  lease.  No  particular  form  of  expression 
is  essential  to  create  a  lease.  A  lease,  however,  for  more  than 
a  year  ought  to  be  reduced  to  writing,  acknowledged,  and 
recorded  in  order  to  protect  the  lessee,  as  it  would  be  a  con- 
tract about  real  estate,  and  within  the  statute  of  frauds  and 
void. 

A  lease  is  like  any  other  contract ;  its  interpretation  rests 
upon  the  intention  of  the  parties,  and  whenever  the  writing 
is  sufficiently  explicit  to  m|ake  manifest  the  intention  of  the 
parties  thereto,  it  will  be  sufficient. 

There  are  many  forms  of  leases  and  many  clauses  to  be 
inserted  to  meet  various  requirements  of  the  contracting  par- 
ties. A  general  form  of  a  lease  may  be  as  follows: — 

FORM  80,    LEASE  GENERAL. 

This  lease,  made  this  ....  day  of  ....,  between  A.  B. 
Company,  a  corporation,  with  its  place  of  business  at  Chicago, 
111.,  party  of  the  first  part,  and  C.  D.,  of  Prescott,  Ariz.,  party 
of  the  second  part,  witnesseth  : — 

That  the  said  party  of  the  first  part  does  by  these  presents 
lease  to  the  said  party  of  the  second  part  the  following 
described  property,  to  wit: — 

(Describe  the  property.) 

To  have  and  to  hold  the  same  to  the  said  party  of  the 
second  part,  from  the  ....  day  of  ....  to  the  ....  day  of  .... 

And  the  said  party  of  the  second  part  covenants  and  agrees 
with  the  party  of  the  first  part  to  pay  the  said  party  of  the 


460  INDUSTRIAL     CORPORATIONS 

first  part  as  rent  for  the  same,  the  sum  of  ....  dollars,  payable 
as  follows,  to  wit : — 

(State  the  time  and  terms  of  payment.) 

The  said  party  of  the  second  part  further  covenants  with 
the  said  party  of  the  first  part,  that  at  the  expiration  of  the 
time  mentioned  in  this  lease,  peaceable  possession  of  the  said 
premises  shall  be  given  to  said  .party  of  the  first  part,  in  as 
good  condition  as  they  now  are,  the  usual  wear,  inevitable, 
and  loss  by  fire  excepted ;  and  that  upon  the  non-payment  of 
the  whole  or  any  portion  of  the  said  rent  at  the  time  when  the 
same  is  above  promised  to  be  paid,  the  said  party  of  the  first 
part  may,  at  his  election,  either  distrain  for  said  rent  due, 
or  declare  this  lease  at  an  end,  and  recover  possession  as  if  the 
same  was  held  by  forcible  detainer;  the  said  party  of  the 
second  part  hereby  waiving  notice  of  such  election,  or  any 
demand  for  the  possession  of  said  premises. 

The  covenants  herein  shall  extend  to  and  be  binding  upon 
the  heirs,  executors,  and  administrators  of  the  parties  to  this 
lease. 

Witness  said  parties'  hands  and  seals. 

(Signature  of  Lessor)      (SEAL). 
(Signature  of  Lessee)     (SEAL). 

FORM    81,    LEASE  BY  POWER  OF  ATTORNEY. 

The  following  form  of  lease  may  apply  to  a  lease  by  a 
power  of  attorney : — 

This  lease,  made  this  ....  day  of  ....,  between  A.  B., 
of  .  . .  .,  etc.,  by  A.  B.,  his  attorney,  of  the  one  part,  and  C.  D., 
of  .  . .  .,  of  the  other  part,  witnesseth  : — 

Whereas  the  said  A.  B.,  by  a  certain  writing,  or  letter  of 
attorney  under  his  hand  and  seal,  duly  executed,  dated  the 
....  day  of  ...*.,  amongst  other  things  therein  contained,  did 
authorize  the  said  A.  A.,  in  the  name  of  him,  the  said  A.  B.. 
and  on  his  behalf,  to  execute  leases  of  such  part  of  his  lands, 
tenements,  and  hereditaments,  in  ....,  as  by  the  said  A.  A. 
should  be  thought  fit  to  be  leased. 

Now  this  indenture  witnesseth : — 

That  for  and  in  consideration  of  the  sum  of  .  . .  .,  to  the 
said  A.  B.,  paid  by  the  said  C.  D.,  the  receipt  of  which  is 
hereby  acknowledged,  he,  the  said  A.  B.,  by  his  attorney,  does 
hereby  lease  unto  the  said  C.  D.  the  following  described 
premises  (describing  them). 

To  have  and  to  hold,  etc. 
Yielding  and  paying,  etc. 


FORMS  461 

And  the  said  C.  D.  covenants  with  the  said  A.  B.,  his  heirs, 
etc.,  to  pay  the  rent,  etc. 

And  the  said  A.  B.,  by  his  attorney,  for  himself,  his  heirs, 
executors,  administrators,  and  assigns,  covenants  with  said 
C.  D.,  etc. 

§  298.     Form  82,  Contract  Sale  of  Corporate  Stock. 

This  agreement,  etc.,  witnesseth  : — 

That  said  A.  B.  shall  sell  and  convey  to  said  C.  D.,  on  or 
before  the  ....  day  of  ....  next,  one  hundred  shares  of  the 
capital  stock  of  the  ....  company,  now  owned  and  held  by 
said  A.  B.,  and  standing  in  his  name  on  the  books  of  said 
company,  and  to  execute  unto  said  C.  D.  all  assignments,  con- 
veyances, and  transfers  necessary  to  assure  the  same  to  him, 
his  heirs,  and  assigns. 

That  the  said  C.  D.,  in  consideration  thereof,  shall  pay  unto 
said  A.  B.  for  each  and  every  share  of  said  stock,  the  average 
market  price  of  the  same  for  and  during  twenty  days  pre- 
ceding the  ....  day  of  ....  aforesaid,  to  be  determined  by  the 
sales  made  at  the  board  of  brokers  in  the  city  of  .... 

In  Witness  Whereof. 

§  299.     Release. 

A  release  of  a  contract,  obligation,  or  duty  is  the  giving 
up  and  the  abandoning  of  that  right  or  the  right  to  exercise 
or  enforce  that  right.  This  may  be  done  by  writing  or  parol 
or  by  lapse  of  time.  It  is  indicated  in  deeds  by  the  words, 
"remised,  released,  and  forever  quit-claimed." 

A  release  m\ay  be  in  the  following  form : — 

FORM    83,  RELEASE  OF  ALL  CLAIMS,  DEMANDS,  ETC. 

I,  A.  B.,  of  .  . .  .,  in  the  county  of  Guce,  and  State  of  Mis- 
souri, for  and  in  consideration  of  the  sum  of  1,000  dollars,  the 
receipt  of  which  is  hereby  acknowledged,  do  hereby  release 
and  forever  discharge  C.  D.,  (of  .  . .  .,  in,  etc.),  his  heirs,  exec- 
utors, and  administrators,  and  of  and  from  all  actions,  causes 
of  action,  suits,  controversies,  claims,  and  demands  whatso- 
ever, for  and  by  reason  of  any  matter,  cause  or  thing,  from  the 
beginning  of  time  to  this  1st  day  of  January,  A.  D.  1904. 

In  Witness  Whereof,  I  have  hereunto  set  my  hand  the  day 
and  year  last  above  written. 

A.  B.  Hotchkiss. 

Executed  in  presence  of  John  Butler, 

R.  D.  Deal. 


462  INDUSTRIAL     CORPORATIONS 

§  300.    Form  84,  Common  Stock. 

STOCK  OR  SHARE  CERTIFICATE. 

Incorporated  under  the  laws  of  the  State  of Capital, 

$1,000,000.     Share,  $100  each.     Fully  paid  and  unassessable. 
Number Shares 

This  certifies  that  ....  is  the  owner  of  ....  shares  of  the 
capital  stock  of  the  ....  Company,  transferable  only  on  the 
books  of  the  company,  in  person  or  by  attorney  on  surrender 
of  this  certificate. 

In  Witness  Whereof,  The  said  company  has  caused  these 
presents  to  be  signed  by  its  president  and  treasurer. 

Dated  this day  of ,  190 

,  Treasurer.  ,  President. 

STUB  OF  STOCK  OR  SHARE  CERTIFICATE. 

No Shares. 

Issued 


Date ,  190 

Received  the  above  described  certificate. 


FORM    85,    CERTIFICATE  OF  PREFERRED   STOCK   REGISTERED. 

(Number.)  (Shares.) 

Incorporated  and  registered  under  the  laws  of  the  State 

of Capital  stock,  $.  . .  .  Preferred  stock,  $. . .  .  Common 

stock  $ 

The  Company. 

This  is  to  certify  that  ....  is  the  registered  holder  of  .... 
shares  of  the  preferred  capital  stock  of  this  company,  trans- 
ferable only  on  the  books  of  this  company,  in  person  or  by 
duly  authorized  attorney,  upon  surrender  of  this  certificate. 

This  stock  is  part  of  an  issue  amounting  in  all  to  $.... 
par  value,  authorized  by  the  certificate  of  incorporation  of 
the  company,  filed  in  the  office  of  the  secretary  of  state  of  the 
State  of  .  . .  . ,  on  the  ....  day  of  .  . .  . ,  190 .... 

The  holders  of  this  preferred  stock  are  entitled  to  receive, 
and  the  company  is  bound  to  pay,  a  fixed  yearly  dividend  of 
....  per  centum  per  annum,  payable  half  yearly,  before  any 
dividend  shall  be  set  apart  or  paid  on  the  general  stock  (and 
the  dividends  of  the  preferred  stock  are  cumulative).  The  pre- 
ferred stock  is  subject  to  redemption  at  par  on  the  ....  day 


FORMS  463 

of 190....,  and  the  holders  of  the  preferred  stock  may 

choose  ....  directors,  and  the  holders  of  the  general  stock 
may  choose  ....  directors  of  the  company.  The  seal  of  the 
company  and  the  signature  of  the  president  and  treasurer. 

,  the day  of ,  190 

President. 

Treasurer. 

Shares,  $100  each. 

§  301.    Form  86,  Notice  of  Dividend. 

Office  of  the  Board  of  Directors, 

Company, 

190 

To  A.  D.,  Chicago,  111.— 

The  board  of  directors  of  this  company  have  this  day  de- 
clared a  dividend  of  ....  dollars  and  ....  cents  ($. . .  .)  per 

share,  payable  on  the  ....  day  of  ....  to  the day  of  . . . . , 

next. 

By  order  of  the  board. 

,  Secretary. 

FORM    87,    DIVIDENDS    DECLARED. 

Resolved,  That  a  dividend  of  ....  per  cent  on  the  capital 
stock  of  the  corporation,  amounting  to  $....,  be  and  the  same 
is  hereby  declared  out  of  the  surplus  earnings  of  the  corpora- 
tion, already  secured  or  hereafter  to  accrue,  payabje  in  the 
United  States  gold  coin  to  the  stockholders  of  the  corporation 
in  proportion  to  their  respective  holdings  of  stock  on  the  .... 
day  of  . . . .,  and  on  the  ....  day  of  each  month  thereafter  in 
the  year. 

FORM   88,   PERMANENT  DIVIDEND  ORDER. 

190.... 

The Company,  New  York  City. 

Until  this  order  is  revoked  in  writing,  please  remit  by  mail 

to  the  address  as  per  margin,  by  check  drawn  to  order  of 

the  dividend  now  due,  or  which  may  hereafter  be  declared,  on 
shares  of  the  capital  stock  of  the  ....  Railway  Company,  now 
or  hereafter  standing  in  the  name  of  (give  name  exactly  as  it 
appears  on  stock  certificate). 

Witness:  (Shareholder's  signature). 


Full  name  and  post-office  address  to  which  check  is  to  be 
mailed. 


464  INDUSTRIAL     CORPORATIONS 

§  302.     Form  89,  President's  Annual  Report. 

Annual  Report  to  the  Stockholders  of 

The  Canada  Mining  Company, 

For  the  Fiscal  Year  Ending  May  . . . .,  190. ... 

Directors  and  Executive  Officers  of  The  Canada  Mining 

Company, ,  190. . . . 

Directors. 

,  New  York 

,  Philadelphia. 

,  Chicago. 

,  Newark. 

Officers. 

President, Vice-President 

Treasurer  and  Secretary,   

Registrar  of  Stock — The  Trust  and  Fidelity  Company  of 
Philadelphia. 

Offices. 
Mills  Bldg.,  New  York  City.  Prudential  Bldg.,  Newark. 

Board  of  Trade  Bldg.,  Chicago,  111. 
To  the  Stockholders  : — 

I  beg  leave,  on  behalf  of  the  board  of  directors  of  this 
company,  to  submit  the  following  annual  report:  etc.,  etc. 

Renfrew  Mining  Enterprise. 
The  most  important  of  these,  etc.,  etc. 
Sainte  Sur  de  Marie  Mines. 
These  mines  were  acquired  under,  etc.,  etc. 

,  President. 

Dated  Chicago,  111.,  January ,  190 

FORM  90,  PRESIDENT'S  ANNUAL  REPORT, 
To  the  Stockholders  of  the 

Company : — 

Gentlemen :  It  gives  me  a  great  deal  of  pleasure  to  report 
that  the  general  condition  of  this  company  is  much  better  now 
than  it  was  one  year  ago.  The  early  portion  of  the  year  was 
marked  by  a  general  depression  in  the  cement  trade,  the  price 

of   ....   barreled  cement  running  down  from  $.  . .  .   to  $ 

A  very  unfortunate  strike  just  at  this  juncture  prevented  the 
filling  of  contracts  even  at  this  price,  and  later  resulted  in 
several  damage  suits  for  breach  of  contract.  These  were,  how- 
ever, compromised  on  terms  quite  advantageous  to  the  com- 
pany, without  extended  litigation. 

The  strike  itself  was  brought  to  a  settlement  by  conces- 
sions on  both  sides,  the  men  yielding  all  their  demands  ex- 


FORMS  465 

cept  as  to  the  hours  of  labor,  the  company  on  that  point  agree- 
ing to  reduce  the  working  day  from,  ten  hours  to  nine  hours 
without  reduction  of  wages. 

From  that  time  the  company  has  enjoyed  a  period  of  un- 
interrupted prosperity cement  rose  June  1  to  $.  . . .  per 

barrel,  which  price  it  has  maintained.  Since  that  time  the 
company,  though  working  its  plant  to  its  fullest  capacity,  has 
been  entirely  unable  to  meet  the  demands,  the  total  sales  for 
190. . . .  running  up  to  ....  barrels,  as  against  ....  barrels  in 

190 The  average  per  centum  of  profit  has  been  greater 

in  190. ... .,  after  deduction  of  all  fixed  charges,  repairs,  main- 
tenance, office  expenses,  etc.,  aggregating  $....  as  against 
....  in  190.... 

Out  of  these  net  receipts  $. . . .  has  been  set  aside  for  addi- 
tional equipment,  and  from  the  remaining  profits,  $.  . .  .  has 
been  passed  to  the  reserve  fund,  leaving  $....,  amounting  to 
....  per  cent  upon  the  total  outstanding  stock  of  the  company, 
available  for  dividends. 

In  conclusion,  I  would  state  that  the company  gen- 
erally is  in  good  condition,  new  contracts  for  shipping  have 
been  unusually  favorable  to  the  company,  its  relations  with 
its  customers  are  entirely  satisfactory,  and  the  outlook  for  the 
ensuing  years  is  most  promising. 

Respectfully  submitted, 


President. 

Company. 

New  York,  Jan ,  190. ... 

§  303.     Form  91,  Report  of  Committee  on  By-laws. 

To  the  Stockholders  of  the 

Company  :— 

Gentlemen:  Your  committee  appointed  at  the  last  annual 
meeting  of  the  stockholders  to  report  any  needed  amendments 
or  changes  in  the  by-laws  of  this  company  beg  to  submit  the 
following: —  ' 

1.  We  would  recommend  the  addition  of  a  by-law  provid- 
ing for  an  executive  committee  to  consist  of  three  members 
of  the  board  of  directors ;  such  committee  to  have  full  control 
of  the  general  business  affairs  of  the  company  in  the  interim 
between  meetings  of  the  board. 

2.  We  would  recommend  that  the  present  by-law  relating 
to  the  regular  meetings  of  the  board  of  directors  be  so  changed 

31 


466  INDUSTRIAL     CORPORATIONS 

as  to  provide  for  quarterly  meetings  of  the  board  instead  of 
monthly  meetings,  as  at  present. 

3.  We  strongly  disapprove  of  the  suggested  amendment 
to  the  by-laws  whereby  the  amount  of  indebtedness  which 
may  be  incurred  by  the  directors  on  behalf  of  the  company 
at  any  one  time  is  increased  from  $10,000  to  $25,000,  as  we 
believe  such  change  to  be  not  only  unnecessary,  but  against 
the  interests  of  the  company. 

Respectfully  submitted, 

James  F.  Gill, 
H.  B.  Sill, 
O.  W.  Holmes, 
Committee  on  by-laws. 
Albany,  New  York, 
Jan.  24,  1903. 

§  304.     Form  92,  Notice  of  Close  of  Transfer  Books. 

Standard  Company, 

Treasurer's  Office,  Rookery  Building, 

Chicago,  April  1,  190. . . . 
To  J.  D.,  Rock  Island,  111.— 

The  transfer  books  of  this  company  will  be  closed  May 
15,  at  3  P.  M.,  and  reopened  May  25,  190. ... 

W.  E.  R.,  Secretary, 

Standard  Company. 
§  305.    Form  93,  Corporate  Calendar. 

of  the 

Company. 

of  New  York  City. 
190.... 
January. 

1st.  Franchise  tax  payable.    Must  be  paid  before  Jan 

Based  upon  November  report.  Amount  of  tax  fixed  and  state- 
ment thereof  rendered  to  the  company  by  State  Comptroller,  to 
checks  should  be  mftde  payable. 

2nd.  Notify  stockholders  of  annual  meeting  to  be  held 
January  13. 

3rd.  Notify  directors  of  meeting  to  be  held  January  14. 
If  directors  are  elected  at  annual  meeting,  this  notice  will  be 
vitiated,  and  must  be  replaced  by  waiver  of  notice  signed, 
after  the  election,  by  all  the  newly  elected  directors. 
4th.  Annual  meeting  of  stockholders  at  3  P.  M. 
5th.  Directors'  meeting  at  4  P.  M.    Of  election  of  directors 


FORMS  467 

was  held  at  annual  meeting;  have  waiver  of  notice  signed  by 
each  director. 

6th.  Annual  report.  To  State  officials.  Must  be  filed  be- 
fore January  30.  Execute  in  duplicate  and  file  with  both  sec- 
retary of  state  and  county  clerk.  No  State  filing  fees.  County 
clerk's  fee,  six  cents.  Blanks  supplied  by  officials.  No  penalty 
is  incurred  if  this  report  is  omitted,  unless  such  filing  is  re- 
quested by  some  stockholder  or  creditor  of  the  company.  If 
so  requested,  report  must  be  filed  within  thirty  days  after  such 
request  is  made. 

7th.  Notice  of  city  assessment  sent  out  about  this  time. 
If  not  received,  inquiry  should  be  made  at  office  of  commi-- 
sioner  of  taxes  and  assessments  to  ascertain  amount,  as  the 
comissioners  are  under  no  obligation  to  send  out  any  notice 
thereof.  If  assessment  is  unsatisfactory,  application  for  re- 
vision, accompanied  with  a  statement  of  the  actual  condition 
of  the  company,  as  of  the  second  Monday  in  January,  must 
be  sent  in  to  the  commissioners  of  taxes  and  assessment  not 
later  than  March  31.  Blanks  for  an  application  and  statement 
furnished  by  commissioners. 
February. 
March. 

8th.  Statement  and  application  for  revision  of  unsatis- 
factory assessments,  if  not  already  filed,  should  be  sent  in 
to  the  commissioners  of  taxes  and  assessments  without  delay. 
Will  not  be  received  after  March  31.  Blanks  furnished  by 
commissioners.  No  fees. 
April. 

3rd.  Notify  directors  of  meeting  to  be  held  April  8. 

8th.     Directors'  meeting  at  4  P.  M. 
May. 
June. 
July. 

3rd.  Notify  directors  of  meeting  to  be  held  July  8. 

8th.    Directors'  meeting  at  4  P.  M. 
August. 
September. 

23rd.  City  taxes.  Get  statement  of  amount  from  assessors' 
office.  If  paid  before  November  1,  rebate  at  rate  six  per  cent 
per  annum  is  allowed  from  date  of  payment  to  December  1. 
October. 

9th.  Notify  directors  of  meeting  to  be  held  October  14. 

14th.  Directors'  meeting  at  4  P.  M. 
November. 


468  INDUSTRIAL     CORPORATIONS 

1st.  Comptroller's  report.  Must  be  sent  in  on  or  before 
November  15.  Blanks  furnished  by  comptroller.  No  fees. 

15th.  City  taxes.     If  not  paid  before  December  1,  one  per 
cent  is  added  to  amount. 
December. 

15th.  City  taxes,  if  still  not  paid,  draw  interest  at  the  rate 
of  seven  per  cent  per  annum  from  January  1. 

22nd.  Close  transfer  books  for  annual  meeting  of  Jan.  12, 
1904. 

§  306.    Form  94,  Dissolution  of  Corporation  Under  the  Laws 
of  Arizona  Territory. 

To  All  to  Whom  These  Presents  Shall  Come,  Greeting: — 

A  majority  of  the  members  of  the  Blue  Eye  Mining  Com- 
pany having  met  at  the  principal  office  of  the  company  at 
Phoenix,  Ariz,  (or  elsewhere,  as  the  case  may  be),  due  notice 
of  the  time,  place,  and  purpose  of  the  meeting  having  first 
been  given  to  all  the  stockholders. 

And  Whereas,  The  undersigned  stockholders  of  the  said 
mining  company  deeming  it  most  advisable  and  beneficial  to 
the  said  corporation  that  the  same  should  be  forthwith  dis- 
solved ; 

Now,  therefore,  we,  the  undersigned,  being  all  the  stock- 
holders of  the  Blue  E(ye  Mining  Company,  pursuant  to  the 
powers  vested  in  us  by  par.  772,  Revised  Statute  of  Arizona, 
1901,  by  a  majority  vote  of  all  the  members  (no  less  number 
can  dissolve  a  corporation  under  the  laws  of  Arizona),  do 
hereby  dissolve  said  corporation  and  order  this  resolution 
spread  upon  the  minutes  of  the  company,  and  a  duplicate  filed 
in  the  office  of  the  county  recorder  (of  the  county  where  the 
original  articles  are  filed),  of  the  Territory  of  Arizona. 

Dated  this  1st  day  of  January,  1904. 

(Signed)     J.  D.  Stowalter, 

Simeon  B.  Bacon, 
Rodney  Smith, 
Solemm  J.  Holder. 

(This  instrument  to  entitle  it  to  record  under  the  laws  of 
Arizona  Territory  must  be  acknowledged  by  the  members 
who  sign  it.) 

If  the  acknowledgment  is  made  before  a  notary  public,  the 
notary  public  must  state  the"  date  when  his  commission  as  a 
notary  public  expires. 


FORMS  469 

There  is  no  provision  under  the  laws  of  Arizona  requiring 
this  paper  to  be  either  filed  or  recorded. 

FORM    95,   CERTIFICATE   OF   DISSOLUTION    BY    UNANIMOUS    CONSENT 
OF  ALL  STOCKHOLDERS.      NEW  JERSEY   FORM. 

Certificate  of  dissolution  by  unanimous  consent  of  all  stock- 
holders of  the  A.  B.  Company. 

The  location  of  the  principal  office  in  this  State  is  at  No. 
24  Canal  Street,  in  the  city  of  Newark,  county  of  Mammoth, 
N.  J. 

1  he  name  of  the  agent  therein  and  in  charge  thereof,  upon 
whom  process  against  this  corporation  may  be  served,  is  Peter 
Samuels. 

We,  the  subscribers,  being  all  the  stockholders  of  the  A.  B. 
Company,  a  corporation  of  the  State  of  New  Jersey,  deeming 
it  advisable  and  most  for  the  benefit  of  said  corporation  that 
the  sante  should  be  forthwith  dissolved,  and  do  hereby  give 
our  consent  to  the  dissolution  thereof,  as  provided  by  "An 
act  concerning  corporations  (Revision  of  1896),"  and  do  sign 
this  consent,  to  the  end  that  it  may  be  filed  in  the  office  of  the 
secretary  of  state  of  New  Jersey. 

Witness  our  hands  this  1st  day  of  January,  A.  D.  1904. 

(Signed)     J.  D.       (SEAL). 
P.  S.       (SEAL). 
G.  M.     (SEAL). 
State  of  New  Jersey  ) 

County  of  Mammoth     j 

Joseph  Thompson,  the  secretary  of  the  above-named  A.  B. 
Company,  being  duly  sworn,  on  his  oath  says  that  the  fore- 
going consent  to  the  dissolution  of  said  corporation  has  been 
signed  by  every  stockholder  of  said  company. 

Subscribed  and  sworn  to  before  me  this  1st  day  of  Jan- 
uary, A.  D.  1904. 

Max  Price, 
Notary  Public. 


GENERAL   INDEX. 


[THE  FIGURES  REFER  TO  SECTIONS.] 


Acceptance    of    Articles    Incor- 
poration      113 

Corporation    no    sovereignty 113 

Eminent    domain    none 113 

Contract  valid  if  accepted 113 

Statute  acceptance  by  state....  113 

Majority    accept    grant 113 

Must  be  according  to  terms....  113 
As  a  whole  rule  all  contracts. .  .113 
General  statutes,  offers  by  state.  113 

Intention   governs 113 

Signing    evidence 113 

Presumed  accepted   113 

Amendments  rule  same 113 

Action  for  accounting. 

Discover  surplus  for  dividend.  .220 

See  dividend  be  declared  220 

Reorganized  company  party  .  . .  .262 

Acknowledgment      o  f      instru- 
ments in  writing. 

See  Incorporation  Companies. 

Unknown   at   common    law 293 

Statutory  creation  293 

States  require  sworn  to 293 

Purpose  to  close  gap  to  fraud.  .293 

Form  Arizona    293 

Form  New  Jersey   293 

Purchaser  and  creditor 208 

General    requisites    272 

Acknowledgments     208 

See  Incorporation  of  Companies 

General  requisites  207 

Protect  purchasers  creditors. . .  .206 

Power  of  Attorney    292 

Of  articles    lOOa 

Variance  in  name  held  fatal. ..  .208 

Corporation   New  Jersey   282 

Proxy   none    125 

Administrator's  Corporation  has 

none     266 

Vote  at  elections  125 

Adoption  of  the  Articles  of  In- 
corporation      lOOa 

Adjournment 91 


Advisory   Board    183 

Affidavit  of  Corporations. 

Corporation  can  not  make 294 

Made  by  its  officers   294 

Form  of  treasurers   294 

Form    of    294 

Officer  makes  on  behalf   294 

Form  general   secretary    294 

Form  secretary  publication    ....294 

Agreement    Consolidation    Con- 
tract  between    Corporations .  263 
Not  vote  in  company  void   ....  124 

Agent. 

Limited    by    by-law    not    effect 

third  person   157 

Corporate  power  to  appoint 166 

Directors  are  corporation  .  .167,  171 
Restricted  business  corporal  ion.  169 

Authority  proved  by  parol  173 

By  directors  execute  deed 175 

May  be  delegated  to  fix  rate 175 

Executes  corporate  contracts. .  .175 
Acts  must  be  repudiated  at  once.  184 

Incorporators  held  liable  as 196 

Contracts  express   198 

Contracts  by  199 

Appointed  charter  authority 200 

Notice  to,  to  company   226 

Rule  applies  to  corporation 227 

Corporation     liable     for     negli- 
gence    229 

Can  not  make  profit  229 

Can  not  act  self  and  seller  . . .  .230 
Other  may  deal  with  same  set  of 
directors  of  two  corporations  .230 

Remedies  against    232 

Principal  liable  for  acts  of  ....233 

Fraud,  principal  liable  for  233 

Compensation  for  service  233 

Corporation    directors    pay    for 

back  salaries  of  235 

Officers'  removal   236 

Appointment  by  voting  trust     .  .242 

Form  of  signature   268 

Alabama       prohibits      directors 
meeting  out  state   171 


472 


INDEX 
[The    figures    refer    to    sections.] 


Amendment  to  Articles   of   In- 
corporation. 

See   by-laws    283 

Only  fundamental   238 

Fundamental  enumerated   238 

Conditions  precedent   238 

Statutory  authority  must  exist.  .238 

Increase  capital  stock 238 

Or  place  business   238 

Agent  company  change  without. 238 

Number  directors  requires 238 

Can  not  change  entirely  by 238 

Courts  favor  change  purposes.  .238 

Construction  not  rigid  238 

Majority  change  over  minority. 238 
Right  may  be  put  in  charter.  . .  .238 

Courts  favor  amendments 238 

Depends  statutory  power   238 

Court  not  interfere  unless  shown 

serve  outside  object 138 

Stockholder    no    control    except 

his   vote    238 

Will   majority  controls    238 

Contains  right  no  injury 238 

Entered   where   made    238 

Varies  according  to  statutes.  ..  .238 

Form   Arizona    239 

Acknowledged  in  any  state  .  . .  .239 
Stockholders  amend  Arizona.  .  .239 

Board  of  directors  make   240 

Resolution  board  form  of 240 

Form  resolution  directors    240 

Form  stockholders  approval  . . .  .240 
Form  secretary's  certificate  .  . .  .240 
Legislature  no  power  to  unless 

right  reserved  240 

Contract  under  constitution  . . .  .240 
Presumption  favor  Legislature.  .240 

Vested  right   240 

Legislative    authority    not    arbi- 
trary     240 

Has  a  limit  to  amend    240 

Not  be  oppressive    240 

Legislature  no  right  to  destroy.  .240 

In  good  faith   240 

Must    be    reasonable    240 

Within  scope  of  articles    240 

Extend  corporate  life   241 

Secure  removal    241 

By-law  notice  must  be  given.  . .  .155 

Directors  can  not 169 

Acceptance    rule    same    113 

Amalgamation  of  Companies.  .262 

Amotion  of  Members 211 

See  incorporation  of  companies. 211 


See   disfranchisements. 

America,  Debenture  in 288 

Annual  Stockholders'  Meeting. 281 

Analysis   of   Articles   of   Incor- 
poration. 

Essentials  to  corporate  life 35 

Charter   matter  proper    36 

Vested    right     37 

Law  can  not  impair  contract ...   38 

Purpose    41 

Object     42 

Power  scope  of  articles   43 

Distinction    other    associations.  .  44 

Stock  measure  of  interest 44 

State  interfere  corporation    ....  47 

Can  not  dissipate  funds   49 

Stock,  character  of  kinds    50 

Advantages  enumerated    50a 

Advantages  by  Cook   52 

Advantages    by    Quarterly    Re- 
view   52a 

Drafting    92 

Invalidated  matter  that  will  .  . .  .111 

Construed  intention    lOle 

Designate  meetings  out  state...  171 

Acknowledgment  207 

Subscription    invalid    213 

Form  articles  of  incorporation.  .282 

Architect,  President  No  Power 
to   employ    184 

Arbitration. 

Ratified  binding  corporation.  ..  .175 
By-law  compel  submit  to  void.. 155 

Arizona  Territory  Articles. 

Conditions  precedent 99-100a 

See   conditions   precedent. 

Laws    analyzed    99 

Statutory       powers       compared 

common    law    98a 

Powers    enumerated     98 

Conditions  precedent  analyzed .  lOOa 
See   drafting  the  articles. 

Articles   filed   auditor    lOOa 

More   rights  natural  person ....  129 

Acknowledgment   293 

Form  Dissolution    306 

Form  acknowledgment  amend.. 239 
Form  articles  incorporation.  ..  .282 
Form  of  by-laws  corporation. .  .283 

Dissolved  only  by  decree  101 

Has  quasi  national  status 102 

Organic    act    102 

Laws    78 

Assets    Transfer    on    Consolida- 
tion      264 


INDEX 


473 


[The    figures    reter 

Assigns    Corporation    266 

Assignment. 

Of  stock,  how  made   217 

Judgment  president  may  take.. 184 

Resolution    sufficient    173 

Directors  may  make    169 

Meeting  directors  out  state 171 

President  without  notice  invalid.  171 
By  directors  separately  void....  172 

Assignable  Instruments 284 

At    Common    law    54 

Inalienable  right    97 

Voting    114 

Attorney. 

Two  companies  fee  from  each..  175 
President  can   not  authorize  ac- 
cept   service    184 

President  may  employ    184 

In    fact    199 

In  fact  only  proxy  199 

Make  acknowledgment    207 

Stock  render  self  in  fact 218 

Can  recover  value  services 235 

In   fact  Signature   273 

Power   of    292 

Attesting  Witness,  Form  of  to 
Contracts    272 

Ayes  and  Nays' 54 

B 
Ballot,  Voting  by 54 

See  voting. 

Bank. 

Stockholder  right  examine  books. 174 
President  not  employ  attorney.  .  84 
Not  bound  pay  notes  president.  .184 
Liable  if  receives  the  money...  184 
Liable  contracts  by  president. .  .184 
President  can  not  profit  funds.  .230 
Officers  are  only  agents  of.... 237 

Bill   of  Sale. 

Not  an   instrument  under  seal.. 290 

Not  acknowledged    290 

Seldom   recorded   290 

Form   290 

Corporation       290 

Bill  of  Exchange. 

Order  another  on  third 291 

First  person   drawer    291 

Second   drawee    291 

Third  called  payee   291 

Acceptor      . , 291 

Order  or  bearer 291 

Inland   or    foreign    291 


to    svctions.] 

What  must  contain    291 

Form .291 

At  sight  or  after  date 291 

Bills  Directors  Authorize    ....  168 

Blank   Proxy,   Good    125 

Bona-flde. 

Not  affected  by  lien  on  shares.. 156 
Purchaser    share    not    protected 

knew  some  no  notice  meeting.  171 
Against  acts  board  out  state....  171 
Protected  officer  issues  stock. ..  .169 

Bonus. 

Stock    with     bonds     contractor 

not   liable   203 

Bonds    void    203 

Corporation    may   give 216c 

Bonds. 

Dividend       219 

Bonds   as   corporate   contracts.  .203 
See   incorporation    companies. 
Owner  of  recover  par  value.  ..  .203 

No    particular    form    284 

To  be  negotiable    2X4 

Essentials    of    negotiability 284 

Eight   requisites   negotiability. .  .284 
Negotiability  entitles  holder.  ..  .284 

Non-negotiable  contracts    284 

Equities  non-negotiability 284 

Stock  elements  negotiability.  ..  .284 

Stock   usually  negotiable    284 

Authorized    board    directors.  ..  .284 

Secured  by  mortgage    284 

Statutory  restrictions  directors.  .284 

Coupon   form    284 

Trustees'  certificate  to  bond.... 284 

Registered   form  of    284 

As  a  dividend    203 

Sold  at  discount  valid  sale 203 

Less  than  par  common  law 203 

Negotiable  made  to  bearer 203 

Corporate  contracts    203 

Town  notice  to  all  void 171 

Registered    is    non-negotiable. .  .284 

For  deed   form    289 

Bearer  registration  unnecessary. 284 

For   reissue  of  lost   stock 289 

Agent  indemnity  bond  form.... 289 

Books. 

Directors  have  absolute  right  to.  174 

Best    evidence    174 

Absence  of,  proved  by  clerk. ..  .174 
Foreign   corporation    mandamus 

to  see   174 

By  mandamus  Wisconsin  174 

Stockholder  absolute  right 174 


474 


INDEX 


[The    figures    refer 

Evidence  one  business  him 173 

As  best  evidence  173 

Kinds    selected    organization.. .  .142 
Officers  turn  over  mandamus . .  .  126 
By-laws. 

Require  witness  to  proxy 125 

Give  right  vote  by  proxy 124 

Change    majority    rule 117 

Or  statutes  of  corporation 39 

Can  not  counter  charter  law.  ...  40 

Govern    officers    45 

Govern    elections   129 

Stockholders   contract    129 

Power  to  make  delegated 129 

Adoption  organization  meeting,  136 
Conform  to  articles  and  law...  136 

Organization       138 

Can  not  take  proxy  right 152 

Form  report  committee  on 303 

Can  not  forfeit  stock 155 

Are  statutes    154 

Stockholders  pass   154a 

Must  be  reasonable  to  be  valid,  155 

Not  against  law    155 

Nor  directed  at  individuals 155 

Permanent  rules  corporation  ..155 
Stockholders  make  by-laws  . . .  155 
Directors  have  no  such  power..  155 
Charter  power  directors  make..  155 

Statute  provide  by-laws 155 

Invalid  conflicts  charter  or  law.  155 

Not  forfeit  subscription   155 

Nor  allow  return  of  stock 155 

Nor   release   stockholder 155 

Can  not  divest  property  right..  155 

Void  provide  for  oath 155 

Exclude  stockholder  books  void.  155 
In  controvention  statute  void..  155 
Impose  penalty  past  tax  void...  155 
Transfer  stock  subject  directors 

void    155 

Cases  void  ,  155 

Member  submit  arbitration   ....155 

Compell  suit  company  is 155 

Enlarging  liability    155 

Creditor  did  not  rely  on  155 

Contravention  statute  void    ....155 

Sell  entire  stock 155 

Prohibiting  canal  Sundays. . .  .155 

Restricting  membership    155 

Restricting  sale  guns  155 

Restricting  seats  exchange. . .  .155 

Passenger  regulation  not 155 

Passenger  R.  R.  must  be  rea- 
sonable   ....  . . 155 


to    sections.] 

Excluding  all  but  guild  void.. 155 

Dillon  on  by-laws 155 

May  be  void  in  part,  valid  part.  155 

Divisible    155 

As  corporation  construes   155 

Binding  on  all  members 155 

By-laws  on  insurance  policy. ..  .155 
Can  not  president  two  votes....  155 
Void  prevent  class  work  with 

another    155 

Method  enacting,  amending,  re- 
pealing none  155 

Need  not  be  in  writing 155 

May  be  modified  by  usage 155 

Charter  may  require  under  seal.  155 
Notice  must  be  given  to  amend.  155 

Directors   may   disregard 155 

Power  make  power  repeal 155 

Changed  to  suit  convenience. .  .155 
Repeal  resolution  inconsistent.  .155 
Proved  not  judicially  noticed.  .  .155 
Reasonable  must  be  general. ..  .155 
Can  not  subvert  matter  of  right. 155 

Reasonable  regulations    155 

Cases  reasonableness  held 155 

Lien   on    shares 156 

Lien  for  debts  due  corporation.  156 

Lien  can  be  credited    156 

By-law   as  a   contract 157 

Contract     individuals    and    cor- 
poration     157 

Creditors   not   claim   under   less 

contracted    reference    to 157 

Can  not  take  away  right 157 

Creditor  must  show  gave  credit 

by  reason  of  by-law 157 

Not  liability  on  third  person...  157 
Can  not  bind  third  person  by 

limit  agent  157 

Third  person  bound  if  knows  of 

and  does  not  exclude 157 

Third  person  exclude  contract.  .157 

Amendment   and    repeal 158 

Made  power  to  repeal 158 

Vested  right  can  not  change...  158 
Directors    can    not    change    by- 
law   limiting   their    power....  158 

Waiver   and    ratification 158a 

Ignored  waived   158a 

Violated    by    directors    may    be 

ratified   by   stockholders 158a 

Directors  violate,  no  officers  can .  158a 
Mode  election  officers  agents.  ..  .166 
Formality  none  unless  required.  166 
Lien  weight  of  authority 156 


[The    figures    refer 

Lien   follows   stock 156 

Except    bona-fide    holder 156 

Lien  void  New  York 156 

Forfeiture  provided  by  statute..  156 

Statute  limits  void,  beyond 156 

Statute  one,  excludes  others.  ..  .156 
Directors'  control  charter  final..  156 
Committee  not  substituted  for 

directors    156 

Vested  right  can  not  destroy..  156 
Persons  coming  in  afterward.  .  .156 

Bind  all  regularly  passed 156 

Invalid  bind   no  one 156 

Invalid      not      disregard      until 

attempt    enforce    155 

Directors  may  make    169 

Need  not  provide  special  direct- 
ors' meeting  171 

Require  call  by  president :  he  not 
present,  by  two  directors — 
meeting  invalid  president  pres- 
ent  171 

Meeting  contrary  to  void 171 

Are  statutes  of  corporation. ..  .154 

See  statutes. 
Can    not    reduce    quorum    less 

charter  requires   172 

Fix  quorum  less  majority 172 

Directors  delegate  their  authprity.175 
May  give  president  authority.  .184 

May  be  waived 184 

Not  binding  on  third  persons..  187 

Followed    in    giving   notice 222 

Govern  officers  and  agents 283 

Form  by-laws  New  York 283 

Stock    283 

Stockholders    283 

Directors    283 

Dividends   finance   283 

Seals    283 

Amendments     283 

Form    certificate    283 

Form   Arizona    283 

Name  location   officers 283 

Seal 283 

Stockholders'    meeting    283 

Directors'   meeting    283 

Officers  of  company  283 

President,    vice-president 283 

Board  of  directors 283 

Secretaries  of  company 283 

Treasurer     283 

Resignation    283 

Filling  vacancies    283 

Offices   duties  delegated 283 


INDEX  475 

to    sections.] 

Issue  and  transfer  stock 283 

Loss  stock  certificate 283 

Stock   non-assessable   283 

Dividends    283 

Statement  of  condition 283 

Notice    283 

Waiver  of  notice 283 

Board. 

Of    directors    election 135 

Authorize     bonds     secured     by 

mortgage    284 

Pass  on  stock  void  by-law 155 

Business. 

Place   designated    76 

See  initial  meeting. 

Corporate  talked  over .91 

Principal     and     principal     place 

not  one  and  same 238 

C 

California  Form  of  Deed  Corpo- 
rate      285 

Cash  Dividend    219 

Capital    and   capital    stock 

See  initial  meeting 60 

Directors  can  not  change 169 

Corporation   basis   of  credit.  .  .216a 

Amount    101 

When  paid  in    lOOa 

Conditions  payment    ....         ..lOOa 

Call. 

Subscription     by     street     agree- 
ment void    172 

Forfeiture     directors     can     not 

waive    175 

Forfeiture    directors    not    dele- 
gate    175 

Board   for   special   meeting 275 

Caveat   Emptor. 

Applies      where     officer     issues 

corporate  stock    169 

Certificate. 

Entitled  property  liquidation. . .  .220 

Trustee    stock    245 

Of  incorporation   282 

.Form  of  to  by-laws 283 

Chattel   Mortgage. 

Variety  in  various  states   287 

Rests    on    intention 287 

Form  corporations  individuals.  .287 
Invalid  without  notice  to  all  di- 
rectors   171 

Charter. 

May   delegate   power   make   by- 
laws to  directors    155 

May  require  by-law  under  seal.  155 


476 


INDEX 


[The    figures    refer 
See  by-law  corporation. 

Mentions  excludes  others  156 

Provides    control    directors    ex- 
clusive   156 

Directors    must    keep    within .  . .  169 
Designate  place  directors'  meet- 
ing     171 

Fixes    number    quorum     direct- 
ors less  void  172 

May  give  president  authority. .  .184 
Notice  all  business  corporation.  .187 
Need   not   provide    for   appoint- 
ment agents    200 

Governs   winding   up   affairs ....  226 

State  can   not  change 226 

May  contain   right  to  amend .  . .  238 
Contract    under   constitution.  ..  .240 

Word  signifies   282 

Measure  of  power  corporation .  .  29 

Must   keep   within 30 

Matter   proper    36 

Obtained  in  only  seven  states.  .  99 
Contract    English    law 146 

Check    Corporation. 

Signing  same  as  other 296 

Countersigned    also 296 

Stated  face  for  what  given 296 

Takes  place   receipt 296 

Evidence     296 

Form   common    296 

Form    countersigned    296 

Name  by  rubber  stamp 296 

Indorsed  executive  committee.  .  .175 

City  Council  Three  Out  of  Six 
May  Act    172 

Close      Corporation     Make      an 

Assignment    172 

Do  all  business  without  record.  .174 

Committee. 

Not     substituted     directors     by 

charter,  latter  control  156 

On   by-laws   report   of 303 

Form  of  report 303 

Common  Law. 

Seal  required  appoint  agents...  166 
No  limit  offices  held  one  time.  .168 

Right  to  examine  books 173 

Examine  books  New  York 174 

Corporations  have  six  powers..  197 

Legislature  not  bound  by 197 

Bonds   issued   less   par 203 

Acknowledgements    none    204 

Rule  agency  applies  officers 229 

Right  to  dissolve   249 

Contracts  assignable  250 


to    sections.] 

Organization    129 

See  organization. 

Adopted   from   Roman    145 

Recognized  usages  and  customs 

corporations  civil  law 146 

Acknowledgements    unknown..  .293 
Clerk. 

Indemnity     289 

Common    Stock 65 

Commonwealth     Waive     Condi- 
tions    lOlb 

Company  Not  Bound  by  Direct- 
ors Acting  Separate 172 

Conditions   Precedent. 

Complied    with   •. .  . .  127 

Conclusion   corporate   contract.  .201 

See  incorporation  companies. 
Contractor  power  of  attorney.  .199 

Capital    stock   and   capital 212 

Requires   amendment    238 

Creating   corporation    108 

Subscription     108 

Enumerated     108 

See  drafting  the  articles 92 

Articles    must    comply 99 

Illustrated    100 

Conditions    subsequent    lOOb 

Contracts. 

By-law   as    157 

Made  by  directors  168 

Good  without  assent  directors.  .172 
Minutes  when  written  signed...  173 
Corporate  carried  out  by  agents.  175 

President  and  secretary 184 

Accepts  benefit  validates 184 

Validated  by  performance 184 

May  be   ratified  by  directors ...  184 

Of  president  bind  bank   184 

Ratification  is  re-contracting. .  .187 
Corporation  made  by  persons..  188 
Not  affected  fictitious  name  ....  193 

Same  power  natural  person 197 

Mode   of   corporate 198 

Limited  only  charter  or  law.  . .  .198 

Power  of  attorney    199 

Corporation  valid  without  seal.. 200 
Officers  authority  presumed.  ..  .201 

Bonds  are  corporate    203 

Liability  on  promotion   stock.  .216c 

Voting  trust  agreement    246 

Between    corporations    and    offi- 
cers not  per  se  void 230 

Liability  of  officers  and  agents.. 233 

Of  amendment  entered  into 238 

Reorganization    destructive    ....  149 


INDEX 


477 


[The    figures    refer 
Of     reorganization     all     compa- 
nies must  be  consulted 262 

Six  happen  and  concur 267 

Forms   of  beginning    270 

Forms    multiple    of   business.  .  ..267 

Should   contain    268 

Signed    by    agent    form 268 

Two  kinds  signatures   269 

Conclude  with    271 

Beginning   forms    270 

May  conclude  with  forms  of... 271 
By  agent  or  attorney  in  fact... 273 
Agent  or  principal  depends  sig- 
nature     273 

By  attorney  in  fact  beginning.  .273 
To  be  negotiable  must  have.... 284 

Accepted   as   whole 113 

Articles  of  incorporation  are..!02f 

Law  can  not   impair 38 

Charter  is    129 

Assignability 284 

Sale  corporate  stock   form  of.  .298 
Connecticut. 

Officers  are  agents  of  bank.... 237 

First  pass  general  act   5 

Laws     83 

Consol     288 

Constitution  U.  S.  Charter  Con- 
tract   Under     240 

Power  of  attorney  strict 199 

Articles   protected   by    103 

Articles  vested  right  under.  ..  .102a 

Congress  under   102b 

Counsel  President  can  Employ.  184 
Consolidation   or   Amalgamation 
of  Corporations. 

Analogous  to  reorganization..  .  .262 
Must  be  two  or  more  companies.262 

Works  a  dissolution    262 

New  company  formed   262 

Creditors'  rights  remain  same.  .262 

Must  be  party  to  actions 262 

Corporate  life  not  lessened 262 

Trust   fund  new  company  must 

be  substituted    262 

All  stockholders  consulted 262 

Merger  by  directors  262 

Statute  plan  followed   262 

Stockholders      consent      statute 

otherwise    262 

State  may  prohibit   262 

Sale  of  assets    262 

Statutory  sanction  some  states.. 262 
Limited  same  kind  states  262 


to    sections.] 

Statutory     right     majority     fees 

same  for  new  company  as  old. 262 

Creditors  can  not  prevent 262 

State  may  impose  tax 262 

Organization  fee  263 

Resolution  of   263 

Preamble    resolution    263 

Contract    263 

Sale    263 

One  of  number  may  amend 263 

Agreement  between  companies.  .263 

Resolution   agreement    264 

Form  of  agreement    264 

Statute  followed  if  is  one 264 

Sale  of  all  or  part  of  property.  .264 
Transfer  of  assets  analogous.  .  .264 
Merged  into  one  amended 

amount  of  capital  stock 264 

Signing  articles  of  consolidation.264 
Stockholders  must  all  consent.. 264 
Publication  of  consolidation.  ..  .264 

Purpose  give   notice 264 

Form  of  articles   265 

Acknowledgment   265 

Counsel  prepare  articles 265 

Corporation. 

See  officers  and  agents. 
Construction  by-laws  followed.  .155 
By-law  between  and  individuals. 157 
Officers   and   agents 166 

See  officers  and  agents. 

Directors  only  agent  of 167 

Seal   acknowledge   same  natural 

person    266 

Directors  can   not  effect   funda- 
mental changes   in    169 

Refuse  to  act  stockholder  may.  .169 

May  ratify  acts  under  seal 169 

Agents  restricted  to  business.  .  .169 
Religious  directors  can  not  act 

separately  172 

DC  facto  proof  by  parol 173 

Foreign       mandamus      examine 

books    174 

Inspections      books      allegations 

mandamus  to  secretary  174 

Close  do  all  business- 174 

Need  not  vote  on  all  business.  .174 
Two  appoint  attorney  to  carry 

on  suit  both  liable   175 

Contracts  carried  out  by  agents.  175 

Bound  if  accepts  175 

Bound  by  ratification   directors.  175 

May  accept  benefit  estop 187 

May  form  corporations  188 


478 


INDEX 


[The    figures    refer 

Subservient  to  national  will  ....  191 
Trust  state  oust  quo  warranto . .  192 

Name    193 

Domicile  in  state  formed 194 

Citizen  state  formed  in  194 

Citizen  under  fourteenth  amend- 
ment to  constitution  U.  S.  ...  194 

Business  out  state  domicile 194 

Existence  who  can  question.  ..  .195 
Not  question  own  existence  ....  195 

Powers  of    197 

Legislature  prescribe  any  form.. 197 

Contracts   mode   198 

Liable  if  they  allow  stock  trans- 
ferred to  the  attorney  in  fact.  199 

Powers  of  attorney  for   200 

Agents  give  notes  regular  course 

of  business    200 

Can't  compel  to  fix  seal 200 

Power  to  sue   202 

Sues  in  its  own  name  202 

Bonds  as  contracts 203 

Officers  who  can  acknowledge.  .207 

Subscription  on  intention   213 

Can't  complain  watered  stock.  .216 
Give  promotion  or  bonus  stock. 216c 
Protected  pay  person  record.  ..  .220 
Liable  to  pledgee  for  dividend 

paid  to  pledger   220 

Certificate  holders  entitled  prop- 
erty   220 

Majority  can   wind   up 225 

Minority  dissent  ineffective.  ..  .225 
May  alienate  all  of  its  property .  225 
Sell  property  as  an  individual.  .225 
Majority  not  beyond  charter.  .  .225 
Majority  can  not  impose  obliga- 
tions   226 

Fraud  majority  not  commit. ..  .226 

Equity  set  aside    226 

Minority    set    aside    acts    fraud 

majority   226 

Ultra  vires  acts  majority  not  do. 226 
Majority     stockholders     control, 
define  policy  and  take  compen- 
sation as  agents  226 

Majority  must  act  in  good  faith. 226 

Fraud  or  oppression  226 

Transacts    business    226 

Two  or  more  to  make  majority. 226 
Major  part  attendance  majority. 226 

Directors  major  part  whole 226 

Amend  majority  can  not  in  some 

jurisdictions    226 

Majority  can  amend  some  states.226 


to    sections.] 

State  not  change  charter   226 

Notice  binds  given  its  agents... 226 
Legislature  not  change  charter. 226 
Notice  to  agents  notice  to  it... 227 

Officers  fiduciary  relation  229 

Officer  not  act  self  company. ..  .230 
Same  directors  not  deal  both.  . .  .230 
Take  benefit  of  deals  bound.... 230 
Must  return  profit  deals  between.230 
Officer  exceed  authority  liable.  .231 
Officer  liable  for  want  due  care. 231 
Stockholders  sue  for  benefit.  ..  .232 

And  directors'  privity  ...: 232 

Officers'  judiciary  relation  . . .  .232a 
Privity  between  and  agents. ..  .237 
Compensation  for  service  agents.235 
Refuse  to  act  stockholder  may.  .237 

Duration    extension    241 

Existence    extended    by    amend- 
ment   241 

Organization  tax  charged    241 

Perpetual  existence  optional.  ..  .241 

Stockholders  may  extend  241 

Arizona  stockholders  extend  life 

corporation    indefinitely    241 

Meeting  to  extend  life   241 

Meeting  to  be  legal  require  ...241 
Perpetual  existence  by  renewal. 241 

Notice  same  as  other 241 

Time  fixed  by  law  for  first  .  . .  .241 

Right  one  of  amendment  241 

Reorganization    of    249 

Can  not  dissolve  itself  249 

Consolidation    262 

Has  no  heirs,  executors  or  ad- 
ministrators   266 

Has  successors  and  assigns.  ..  .266 

Acts  through  agents    266 

Has  no  legal  representatives.  .  .266 

Signature   in   full    266 

Get  control  of  another  corpora- 
tion by  purchase  of  its  stock.  .280 

By-laws   forms    283 

Bonds    284 

Private  one  share  vote  115 

State  object  corporate  existence.  112 
Stockholder  can't  object  ...'...112 

Creditors  can  not  object   112 

State  must  be  party  dissolve. ..  .112 

Stockholders  up  monopoly 112 

Municipal  authorities  not  112 

State  not  attack  collaterally. ..  .112 
Rule  stated  no  other  than  state.  112a 
Existence  de  jure  or  de  facto.  .112a 
Foreign  or  domestic  rule  same.H2a 


[The    figures    refer 
Collateral    de   jure   or   dc   facto 

no  attack   1 12a 

Object  ultra  vires  106 

Person  fourteenth  amendment .  102b 

Forming 53 

See  initial  meeting  to  form. 

Duration  time  length    71 

Follows  person  in  offices  97 

Organization    127 

By-laws  of 129 

Organization  business  company.  131 

See  organization. 

Books  bought  organization  ....142 
Can  not  attack  own  existence.  .152 
Acknowledgment  New  Jersey.. 293 

Note  295 

Calendar  305 

Courts. 

Hold  incorporators  partners  ....  196 
Disregard  restrictive  provisions 

of  statutes  in  issue  of  bonds. 203 
Refuse    to    hold     stock     issued 

bonus  to  bonds   unpaid    203 

Scrutinize  acts  of  officers 230 

Set  salary  aside  unfair 235 

Will  not  balance  probabilities.  .238 
Not  interfere  amend  unless  out- 
side purpose  shown  to  serve.  .138 
No  inherent  forfeit  charter.  ..  .lOlb 
Ground  dissolution  corporation. lOlb 

Counsel   of  Company 181 

Coupon. 

Independent  obligation    203 

Detached  same  as  bond   203 

Form 284 

Creditor. 

Did  not  rely  on  by-law    155 

Can't  claim  under  without  con- 
tract reference  to  by-law   ....157 
Assignment  for  by  separate  as- 
sent of  directors  void   172 

Can  not  hold  bonus  stock  issued 

with  bonds  as  unpaid   203 

Acknowledgments  to  protect. .  .204 
Sue  directors  and  officers  for 

fraud 232 

Right  in   reorganization    ...... .262 

Can  not  prevent  consolidation.  .262 
Proceed  in  equity  get  claims. .  .  .262 

Can  not  object  existence 112 

Come  in  for  assets  48 

Cumulative  Voting 120 

D 
Deed  by  Corporation. 

Same  as  any  285 


INDEX  479 

to    sections.] 

May  contain  resolution  directors.285 

Seven    requisites    285 

Not  all  essential    285 

Notice  constructive  recorded. . .  .285 
Form    of    Deed    by    Corporation 
Absolute  proved  to  be  mortgage  286 

Forms  enacted  legislatures 286 

Short   forms  best    286 

Long  forms  by  Kent   286 

Difference  between  mortgage. .  .286 

Bond  for  form  289 

Separate  consent  directors  void.  172 
Directors  may  appoint  agent  to 

execute   175 

Grantor  in  estopped  to  question.  195 
Acknowledged  admit  record. . .  .205 
Evidence  without  other  proof 

acknowledged    205 

Ending  clause  corporation 274 

Debts. 

Of  corporation   77 

Providing   for    288 

Bonds  are  corporate 203 

Debenture. 

As  understood  in  America 288 

Lien  on  collateral  security 288 

Defined   288 

Person  partnership  corporation.  .288 
Is  note  with  collateral  security. 288 

Collateral  trust  indenture  288 

Form   of    288 

Stock    288 

Stock.  English   form    288 

Issued  at  discount  in  England.. 203 

Sale  at  60  cents  valid  203 

Issued  at  discount  for  cash 203 

Debenture  Stock. 

Similar  to  registered  bond 288 

Stock  288 

Deceit      Ground      of      Liability 
Agent 233 

Deferred  Stock 68 

De  Facto. 

Corporation  evidence  proof.  ..  .112a 

No  collateral  attack  112a 

Existence  explained   112a 

Corporation   128 

Corporation  proved  by  parol...!73 

Defense  No  Notice  Good 222 

Defeasance      in      Deed      Makes 
Mortgage 286 

De  Jure  or  De  Facto. 

Corporation  if  neither  the  form- 
ers are  liable  as  partners 196 

No  attack  collateral 1 12a 


480 


LThe    figures    refer    to    sections.] 


Existence    112a 

Corporation     128 

Directors. 

See   quorum    172 

See  by-laws  283 

Buy  proxy  fraud   125 

Rule   majority    117 

Organization  by-laws  fixes 138 

Not  elected  if  named  in  charter.  138 
Authorize  deed  by  resolution.  .  .285 
No  power  to  make  by-laws.  ...  155 
Delegated  power  make  by-laws.  .155 

May  disregard  by-laws   155 

Control  by  charter  exclusive.  ..  .156 
Illegally  elected  mandamus  to 

compel  turn  over  books   126 

Form  minutes  vary    159 

Order   of   business    160 

Minutes  form   161 

Form  minutes  directors'  meeting  161 

Call  waiver   form    162 

Inspectors'  .election    163 

Form  resolution  accept  property.  164 
Treasurer  order  open  account.. 165 
Certificates  stock  resolution.  ..  .165 

Signing  minutes    165 

Usually  stockholders    167 

See  officers  and  agents. 

Stockholders  in  New  York 167 

Required  reside  in  state   167 

Supreme  power  to  contract 168 

Agents'   corporation    167 

Powers    of    168 

Authorize  agents  to  contract.  . .  .168 

Authorize  notes  and  bills   168 

Prosecute  actions  law  equity.  ..  .168 
Make    by-laws     if    power    dele- 
gated to  them   169 

Ratify  acts  former  meeting 171 

Alone  liable  where  they  buy  for 

corporation  and  agree  to  pay.  .172 
Right  to  delegate  their  power..  175 

Pass  on  subscriptions    175 

Elect  subordinate  officers   176 

Give  president  power  make  notes.  184 

Can  overrule  president   184 

May  assent  president's  acts 184 

Discuss     act    president     without 

taking  action   ratifies    184 

Acquieses  in  bond  ratifies 184 

May  authorize   subordinates.  ..  .187 

Declare  dividends    219 

Not    stockholders    declare    divi- 
dends   220 

Judgment  conclusive  when  divi- 


dend should  be  declared  220 

Remedy  to  remove  obnoxious. .  .220 

Can  not  commit  fraud  220 

Must  be  majortiy  board  226 

Same    set    for   two   corporations 

can  not  act : 230 

May  deal  with  other  agents 230 

May  loan  money  to  corporation. 230 
Must  act  good  faith  or  liable  to 

corporation     231 

Privity  to  corporation   231 

Individually      liable      for      false 

statement  in  prospectus  234 

Fix  price  services  officers 235 

Must  act  in  good  faith 235 

Not  raise  salaries  after  fixed.  . .  .235 
Can    not   remove  an   officer   put 

in   by  stockholders    236 

Make  amendment  some  states.  ..240 

Resolution  to  amend   240 

Meeting  to  reorganize' .255 

Special  adjourned  meeting 279 

No  notice  necessary   279 

Close  proximity  279 

Call  and  waiver  assembled 279 

Form  of  notice  call  directors. . .  .279 

Directors,  see  by-laws   283 

District  Columbia  Laws 80 

Dissolution. 

May  occur  from  insolvency  sale 

or  cease  to  do  business 249 

Of  corporation   251 

Steps    251 

Agreement  form  new    251 

Meeting    ...'., 251 

Resolutions    251 

Directors  old  and  new  company. 251 

Notice  given  of  dissolution. 252 

Proxy     ordinary     not     sufficient 

sell  all  property  252 

Proxy    sell    all    assets     so    ex- 
presses     252 

Contents  of  notice 252 

Publication    required    252 

By  judicial   decree    101 

Corporation   lOla 

By  court  equity   lOlc 

Arizona 306 

Form     306 

Acknowledgment   306 

Consent  New  Jersey   306 

Affidavit  stockholders'  consent.. 306 

Corporation   directors  can  not.. 169 

Company  notice  must  state   ....221 

Disfranchisement  of  Members.  .211 


[The    figures    refer 

Discretion    Directors   Not   Dele- 
gated     170 

Dividend  of  Corporation. 
See  by-laws. 

Notice  of  form    301 

Form   resolution    301 

Form    permanent    301 

Bonds  as  a   203 

One  method  issuing  stock 214 

Scrip  issued  as  substitute 220 

Legal  when   220 

Stock  dividend  legal    220 

Scrip  issued  anticipation  220 

Property  dividend  220 

Registered    holder   entitled 220 

Pays  to  person  of  record  220 

Notice  must  pay  to  transferee. .  .220 
Passes  dividends  subsequent  . .  .220 
Tax    sale    purchaser    takes    sub- 
sequent dividends   220 

Pledgee  entitled  to  dividends. .  .220 
Officers    know    transfer    pledgee 

get  dividends    220 

Profits   only    219 

Profit  belongs  until  declared. . .  .219 

Board  of  directors  declare 219 

Declaring     dividends     by     cash, 

stock,  bonds,  scrip,  or  property .219 
Stockholders   can   not   declare.  .219 
Pledgee    claim    dividend    prece- 
dent over  claim  against  pledgor.220 
Liable  to  pledgee  dividend  paid 

pledger  had  notice  220 

Liquidates  pay  certificate  holders.220 
Equity   prevent    unfair   distribu- 
tion of  profits  220 

Minority   redress  against   officer 

unfair  division  profit   220 

Dividend  declared  debt  in  favor 

of  stockholder    220 

Declared  can  not  be  revoked.  . .  .220 
Directors    not    stockholders    de- 
clare   220 

Equity  will  not  compel  dividend 

declared    220 

Net  income  only  declared 220 

Directors  judgment  conclusive.  .220 
Directors  have  broad  discretion. 220 
Elections  remedy  remove  direct- 
ors     220 

Directors  can  not  commit  fraud. 220 
Action  for  accounting  first  to  see 

if  dividend  can  be  declared.  .220 
Equity  see  profits  for  distribution.220 
Equity  must  aver  in  bill  infor- 


INDEX  481 

to    sections.] 

mation  refused  on  discovery.  .220 

Maine  dividend   220 

Numerous  cases  annotated  220 

Officers  not  liable  who  declare.  .231 
Go  in  pooling  contract  to  trust 

certificate  holder   245 

Domicile  in  State  Formation .  .  lOOa 

Within  state  of  formation 194 

Statute    consulted    dissolve 249 

Drafting  the  Articles  of  Incor- 
poration. 

Condition  precedent   92 

Matter  eliminated   93 

Franchise  property   93a 

Matter  eliminated  generally.  ..  .93b 
Powers  by  law  eliminated.94,  97,  97b 
Doctrine  contract  without  seal..  95 

Combination  doctrine  96 

Two  ends  reached  by   97 

Scope  of  natural  person 97 

Legal  immortality  reached 97 

At  common  law  97 

Inalienable  rights    97 

Powers  Arizona  enumerated  ...  98 
Powers    at    common    law    com- 
pared  Arizona    98a 

Usage  and  custom  corporation s.98a 

Analysis  laws  Arizona   99 

Charters  obtained  seven  states..  99 
Conditions  precedent  Arizona. .  99 
Conditions  precedent  comply. .  .  99 
Conditions  precedent  pointed 

out    100 

Conditions  precedent  illustrated .  100 
Charter  not  schoolboy's  essay..  100 
Conditions  precedent  Arizona 

analyzed   lOOa 

Adoption    lOOa 

Signing  lOOa 

Acknowledgment    lOOa 

Recording    lOOa 

Name lOOa 

Principal  place  of  business.  .lOOa 
Place  transacting  business ...  lOOa 

General  nature  business lOOa 

Capital  stock  amount  lOOa 

Capital  stock  when  paid  in ...  lOOa 

Conditions  of  payment lOOa 

Commencement  of  business  ....  101 

Officers  of  corporation   101 

Elected  when   101 

Indebtedness    of   company 101 

Exemption  private  property.  ..  .101 
Certified  copy  filed  auditor  ....  101 
Condition  subsequent  lOlb 


482 


INDEX 


[The    figures    refer 

Publication  articles  lOlb 

Publishing  superfluous    lOlb 

Due  incorportaion  presumption. .101 

Dissolved  judicial  decree 101 

Dissolution  grounds  other 101 

Dissolution    lOla 

.  Forfeiture  of  articles  causes.  ..lOlb 
Waiver  conditions  by  state  ....  lOlb 

Court  can  not  forfeit lOlb 

Grounds  forfeiture  lOlb 

Equity  dissolve  rule  none lOlc 

Equity  grant  relief  . . . lOlc 

Equity  jurisdiction  abuse  trust. lOlc 
Stockholders  liable  unpaid  stock.  101  d 

Sinking  fund  loaned   lOld 

Interpretation    lOle 

Interpretation  favor  of  state... lOle 
Intention  plain  court  follows.  .lOle 

Due-Bill    Good    Signed    by    Di- 
rectors     172 

Dummies'     Signatures     Insuffi- 
cient    lOOa 

Due  Process  Law  Denned, 

102a,  102c 

Applied  to  franchise 102c 

E 

Election. 

Injunction  not  lie  afterward ....  126 

Tested  by  quo  warranto 126 

Set  aside  for  fraud 126 

Of  officers lOOa.   128 

Equity  not  interfere  after  over.  126 

Officers  inherent  power    129 

Follows  adoption  by-laws  129 

Of  inspectors'  organization 135 

Board  of  directors'  organization .  135 
Inspector  directors'  meeting. ..  .163 
Officers  and  agents  by  by-laws.  .166 
President  without  notice  invalid.171 
Trustees  school  those  out  of 

state  need  no  notice 171 

Remove  obnoxious  directors. . .  .220 

Eminent  Domain. 

Right  of  given  by  state 113 

Enjoined. 

Proxy    125 

Majority  by  minority    119 

Equity. 

Set  elections  aside  for  fraud.  . .  .126 
Appoint  receiver  to  vote  stock . .  126 
Not  interfere  election  afterward .  126 

Dissolution    lOlc 

Grant  relief  lOlc 

Jurisdiction  abuse  trust lOlc 

Interfere  hostility  internally ....  168 


to    sections.] 

Not    interfere    directors    unless 

violate  charter  or  express  law.  168 
Assist  against  directors  no  other 

remedy    169 

Will  supervise  trials  to  expel... 211 
Prevent  unfair  divide  profits.  ..  .220 

Bill  make  out  profits 220 

Bill    surplus    sufficient   and   that 

information  refused   220 

Set  aside  acts  of  fraud 226 

Remedy  against  agents  liability. 232 

Error  of  Judgment  Officers  Not 
Liable  to  Corporation 231 

Estoppel  to  Questions  Corporate 
Existence  Who  Are 195 

Evidence. 

Books  only  of  ownership 126 

Stock  right  in  corporation 28 

Proxy  proved  by  parol  125 

Minutes  are  of  acts  out  of  state.  171 

Notice  presumed  quorum 171 

Notice  consent  is  171 

Minute-books  corporation  best.  .173 
Books  corporation  third  person.  173 

Books  Corporation  best 174 

Sworn  copies  none  unless  books 

accounted  for   174 

Acknowledgment  makes   204 

Corporation  has  none   266 

Executive   Committee. 

Meeting  void  no  notice  all 171 

Not  usurp  power  directors 175 

May  indorse  checks  175 

Authorized   by   stockholders. ..  .175 

Rule  adopted 175 

Can  not  delegate  its  authority  to 

one  of  its  number   175 

Can  not  buy  patent  right  175 

Can  not  vote  large  compensation 

to  themselves   175 

Acts  binding  in  New  York 175 

Acts   approved   by   directors. ..  .175 

Power  to  issue  stock 175 

Majority  binding  175 

All  must  have  notice  175 

Exchange. 

To  order  of  bearer 291 

Of  property  for  stock   280 

Existence   Extension    of   Corpo- 
rate      241 

S^ee  drafting  the  articles. 
F 

Fees. 

Consolidation   same    262 

For  organization .262 


INDEX 


483 


[The    figures    refer 

Federal  Court  Jurisdiction  Div- 
ers Citizen  Depends  on  Domi- 
cile Corporation  192 

Fiduciary. 

Directors     breach     stockholders' 

act    169 

Relation  officers  to  corporation.  .229 
Relation  limitation  don't  run..232a 
Forms. 

Acknowledgment   New  Jersey.  .293 

Acknowledgment  Arizona    293 

Accepting  property  for  stock...  151 

Agreement   to  consolidate 264 

Articles  incorporation  Arizona.  .282 
Attesting  witness  to  contracts.  .272 

Articles  of  consolidation 265 

Amendment  by  stockholders. 
Acknowledgments  Arizona    . . .  .239 

Amendment  articles   238 

Bill  of  exchange   291 

Bill  of  sale  for  corporation. ..  .290 

Bill  of  sale  290 

Bond  reissue  of  lost  stock 289 

Beginning  of  contracts   270 

By-laws  Arizona   283 

By-laws  of  New  York 283 

Coupon   284 

Corporate  calendar  305 

Check  Countersigned  296 

Common  stock  300 

Chattel  mortgage  corporation  to 

corporation    287 

Of  Corporate  mortgage 286 

Call  waiver  notice  148 

Call  and  waiver  directors 162 

Certificate  to  by-laws  283 

Certificate  of  incorporation  New 

Jersey    282 

Call  waiver  directors'  meeting.  .279 

Construction  of  contracts  271 

Corporate  requisites  two 269 

Dissolution  Arizona   306 

Dissolution  New  Jersey  consent. 306 

Debenture  stock  England  288 

Debenture    288 

Deed  by  corporation   285 

Directors'  minutes    161 

Ending  clause  sealed  instrument  274 

First  meeting  to  organize 137 

Signature  to  sealed  instrument.  .274 
General  affidavit  for  corporation  294 

General  power  of  attorney 292 

How  to  fill  blanks 266 

Common    sense    266 

Transfer  blanks  from  forms  for 


to    sections.] 


individuals  266 

Difficult  lawyers  make  change.. 266 
Corporation    has    no    heirs    ex- 
ecutors  or   administrators. ..  .266 

Successors  and  assigns  266 

Sovereignty  corporation  none... 266 
Legislature  may  delegate  sover- 
eignty   . . . '. 266 

Acts  through  agents   266 

Sells  same  as  natural  person... 266 
Identifies  corporation  by  descrip- 
tion     266 

Legal  representatives  not  used.. 266 
Corporation  none  of  five  senses. 266 
Corporation  theoretical  only.  . .  .266 
Three  essentials  to  fill  blanks.  .266 

Corporate  signature   266 

Chief  officer  signs  name 266 

Receiver  insolvent  corporations. 266 
Contracts  substance  looked  to. .  .266 

Contracts   interchangeable    266 

Indemnity  good   faith  agent.... 289 

Lease  general  corporation   297 

Minutes  special  stockholders.  ..  .277 
Minutes  of  adjourned  meeting.  .278 

Minutes  of  initial  meeting 59 

Minutes  organization  any  state..  147 
Notice  call  directors'  meeting.  .279 
Notice  of  special  call  meeting.  .275 
Notice  organization  meeting.  . . .  132 
Notice  waiver  organization  ....  133 
Notice  close  of  transfer  books.. 304 
Notice  of  dividend  corporation .  301 
Note  power  purchase  collateral 

guaranty 295 

Order  of  business  directors  .  . .  .160 

Offer  property  for  stock 150 

Ordinary  simple  power  attorney. 292 
Publication  notice  stockholders'. 276 
Proxy  or  power  of  attorney.  ..276a 

Proposition  to  sell  assets .257 

Proposition  accept  offer  sell.... 259 

Proxy  no  set    125 

Power  attorney   revocation 292 

Proxy  short,   long    292 

Proof  corporate  New  Jersey. . .  .293 

President's  annual  report  302 

Permanent  dividend  order  301 

Preferred  stock   300 

Resolution   accepting  property ..  164 

Reorganization  notice    253 

Resolution  authorizing  directors 

to  sell  assets  by  stockholders. 255 
Resolution  to  sell  reorganization. 256 


484 


INDEX 


[The    figures    refer 

Resolution  accepting  offer  sell.. 259 
Resolution  accepting  offer  to  sell 

on   reorganization    261 

Resignation  of  treasurer  279 

Registered   bond    284 

Registration  clause  gold  bond.  .284 
Revocation  power  of  attorney.  .292 
Report  of  committee  on  by-laws 
Resolution  declaring  dividend.  .  .301 
Release  all  claims  and  demands. 299 

Scrip    220 

Signature  of  person  by  agent. .  .268 
Signature  of  attorney  in  fact  to. 273 
Special  minutes  of  directors' 

meeting    279 

Stockholders'  annual  meeting.  .  .281 

Subscription    63 

Seal  adopted  organization 140 

Secretary's  affidavit  publication. 294 

Short  note  corporate   295 

Sale  of  corporate  stock  298 

Testimonium  with  seal   73 

Voting  trust  contract  246 

Voting  trust  stock  preferred.  . .  .248 
Voting  trust  certificate  common. 247 
Given  proxy  directory  only.. .  .276a 

Testimonium  corporate  74 

Trustees'  certificate  to  bond  . . .  .284 

Franchise. 

Sale  of  corporate   250 

Usurped  from  sovereign  112a 

Corporate  can  not  be  sold ....  102e 

Property  102 

Under  due  process  of  Iaw....l02c 

Fiction    18 

Corporate    property    93 

Fraud. 

Acknowledgment  to  prevent.293,  205 

Minutes  takes  out  statute 173 

In  issue  of  stock  and  bonds. . .  .203 

In  issue  stock  violates 214 

Issue  stock  creditors  right.  ..  .216a 

Directors  can  not  commit 220 

Majority  can  not  commit  wind 

up  affairs   226 

Minority  set  aside  majority.  ..  .226 
Officers'  acts  court  set  aside.  . .  .230 

Directors  buy  proxy    125 

Officers  and  agents   individually 
liable  to  third  persons 234 

Forming   Corporation. 

Certificate  of  incorporation 282 

Articles    of    incorporation 282 

Charter   282 

Form  articles  Arizona  282 


to    sections.] 

Form  certificate  New  Jersey ....  282 

Acknowledgment  New  Jersey.  ..282 

Conditions    precedent    complied 
with 127 

Free  competition  misnomer  . . .  .245 
G 

General  manager  182 

Guaranteed   stock    70 

H 

Heirs,  corporation  has  none.... 266 

I 
Incorporation  Companies. 

See  initial  meeting. 

See  organization   of  companies. 

See  condition  precedent. 

Own  franchise   250 

Watered  Stock. 

Defined    215 

Face  value  property  equal  to.  .215 
Represents  any  value  good.  . .  .215 

Methods   issuing    216 

Three  ways  issuing   216 

For  money  less  than  par 216 

For  property  overvaluation. .  .216 
For  dividend  more  property.  .216 

Not  illegal  per  se 216 

Value  fixed  by  who    216 

Valid  as  between  stockholders 

and  corporation   216 

Provisions  statute  ineffective.  .216 
Remedy  examine  property. ..  .216 

Stock  issuing  and  paying  up. 
Subscription   not  necessary. .  .214 
Subscriber  no  preference  over 

purchaser    214 

Dividend  if  properly  added... 214 

Subscription   to   stock. 

Action  to  inforce   213 

Defense  failure  acknowledge.  .213 

Waived  by  consent  213 

Creditors  no  power  to  release. 213 
Power  delegated  to  creditors. 213 

Subscriber  cancel  subscription.  .  .213 
Majority  rule  does  not  apply. 213 
Three  methods  issuing  stock. 214 

Money     214 

Property  or  labor  214 

Stock  dividend  214 

Paid     in    anything    of    value 

where  there  is  no  fraud.  . .  .214 
Crossties,  real  estate,  services, 

construction    work    214 

Alabama  land  payment   214 

Acknowledgments. 

General  requisites   207 


[The    figures    refer 
Corporation  like  individual.  .  .207 

Anciently  no  act  seal 207 

Proved  by  party  who  affix  seal  207 

Made  by  any  officer    207 

Municipal  who  acknowledges. 207 

Trustees  of  corporation 207 

Officers  that  can  make 207 

Not  showing  official  character. 207 
By  official  signature  officer... 207 
Before  officer  corporation.  . .  .207 

Articles  of  incorporation 207 

Name  in  blank  sufficient 207 

Official  signatures  held  valid. 207 

Attorney  corporation   207 

Name    supplied    207 

Common    law    unknown 204 

Protect     creditors     and     pur- 
chasers     204 

Necessary  to  admit  to  record. 204 
Make  competent  evidence. ..  .204 

Essentials  to  admit  to  record. 

Deed    205 

Deed  acknowledged  evidence. 205 
Originated  prevent  fraud.... 205 

Statutory  requirement   205 

Absence  statute  required 205 

Constructive  notice  by  record. 205 

Protects    purchasers    and    credi- 
tors     206 

General  requisites   207 

By  corporation  done  by  agent. 207 

Officer  fix   seal    207 

Variance  name  fatal    208 

Variance   name   list   of 208 

Words  omitted  that  are  fatal. 209 
Variance  not  aided  by  parol..210 

Amotion    of    members    corporation. 

Expel  on  three  grounds 211 

Infamous  crime   211 

Offense  against  duty   211 

Compounded  of  first  two  ....211 
Expulsion  not  effect  property. 211 

Can  not  expel  arbitrarily 211 

Notice  party   211 

Party  opportunity  be  heard.  ..211 
Not  expel   for  revenge,  relig- 
ious intolerance   211 

Applies  to  officers    211 

Disfranchisement  to  members. 211 

Inquiry  quasi  judicial   211 

Equity  supervise  expulsion.  .  .211 
Mandamus  211 

Capital  stock  and  capital. 
Capital  stock  always  same.... 212 
Capital  broader  term   212 


INDEX  485 

to    lections.] 

Capital  includes  everything.  .  .212 

Illustration    212 

Capital  signifies  actual  estate.  .212 
Subscription  to  stock. 

Like  any  contract   213 

Depends  on  intention  213 

Verbal    sufficient    213 

May  be  inserted  in  articles. .  .213 
Bonds    as   corporate   contracts. 

For  confederate  money 203 

Stocks   and   bonds   issued    for 

construction  work  R.  R.  less 

than  par  valid   203 

Courts    refuse    to    hold    stock 

as    unpaid    203 

Creditor    can    not    hold    stock 

unpaid    203 

Fraud  in  issue  of  stock  with 

bonds     203 

Overvaluation  and  fraud 203 

Suit  for  accounting  203 

Bonds  owner   recover  for.... 203 

Bonds  as  a  dividend   203 

Bonds  differ  from  stock   ....203 

Bonds  at  ninety  cents 203 

Bonds  at  eighty  cents 203 

Bonds     twenty-five    per    cent 

discount  valid  to  directors.  .203 
Debentures  sixty  cents  valid.  .203 
Municipal  at  discount  void... 203 
Municipal  below  par  illegal.  .  .203 

Bonus  stock  with  bonds 203 

Bonus  bonds  void  203 

Bonds  eighty  cents  sustained.  .203 
Debenture   in    England   issued 

at  discount    203 

Debenture  at  discount  for  cash  203 
Power  of  corporation  to  sue. 
Contract  name  of  officer  still 

must  sue  name  corporation .  202 
Change  name  must  sue  in  new  202 
One  character  of  debt  bonds.  .203 

Germane  to  issue  bonds 203 

Can  create  any  debt   203 

Obligation  under  seal   203 

Seal  original  method  203 

Negotiable  if  so  made  203 

Coupon     independent     obliga- 
tion     203 

Same  as  bond  203 

Statute    provide    mode    issue 

must  be  followed 203 

Statute  restrictive  203 

Courts  disregard  restrictive.  ..203 
Common  law  bonds  less  par. .  .203 


486 


INDEX 


[The    figures    refer 

Contracts  by  agents  or  power  of 
attorney  parol  power  199 

Parol  authority  bind  writing. . .  .199 

Proxy  simple  power  attorney.  .  .199 

Power  of  attorney,  elements. 

Eight    elements    200 

For  corporations   200 

Notes  given  regular  course  of 

business   corporation    200 

Agents       appointed       without 

charter  authority  200 

Agent  appointment  implied.  .  .200 
Seal  contracts  valid  without.. 200 
Court  compel  fix  seal 200 

Construction  contracts  corporations. 

.  Officer    authority    presumed.  .201 
Change  name  still  responsible 
on  old  contracts    201 

Power  of  corporation  to  sue. 

Sues  in  name  corporation.  ..  .202 
Do  anything  within  charter.  ..197 

Mode  of  corporate  contracts. 

Like  natural  person .198 

Limited  by  charter  or  law. 

Parol  contracts  valid  198 

Agents'  contracts  express  ....  198 

Resolution  not  required   198 

Seal  not  necessary   198 

Individual  members  not  bound. 198 

Contracts  by  agents  or  power  of 
attorney. 

One  instead  of  another  199 

Attorney  in  fact   199 

Construction   strict    199 

Attorney  transfer  not  self. . .  .199 
Corporation     liable     if     allow 
transfer  stock  to  the  attor- 
ney in  fact  199 

De   jure   nor    de   facto    formers 
liable. 

Courts  some  formers  not  liable.196 
Liable  on  implied  warranty.  .  .196 

Held  on  same  ground  as  agent.  .196 

Powers  of  corporations. 
As  natural  person  contract. . .  .197 
Common  law  six  powers  ....197 

Legislature   grants    197 

Implied  powers    197 

Sovereignty  corporation  none.  197 
Legislature  not  bound  by  com- 
mon law  197 

Legislature  prescribe  any  form. 197 
Method    prescribed    must    be 
pursued  strictly    197 


to    sections.] 

Corporate    existence,    who    can 
question. 

Persons  who  form  can  not...  195 
Can  not  question  own  existence.195 
Nor  persons  contracting  with.  195 

Grantor  in  deed  estopped 195 

Maker  note  estopped  195 

Rule  not  on  principal  estoppel .  195 

Principal  common  justice 195 

On  reason  and  good  faith ....  195 
One  dealing  with  estopped. . .  .195 

Name  of  corporation. 

Exclusive  right  to   193 

Necessary    to    perpetual    suc- 
cession     193 

May  have  several   193 

Change  of  not  affect  193 

Use  fiction  not  effect  contracts.  193 

Domicile. 

Within  state  formed   194 

Citizen  state  where  formed...  194 
Federal  court  jurisdiction.  ..  .194 

Citizen  constitution  U.  S 194 

May  do  business  out  of  state.  194 
State   may   incorporate   corpo- 
ration of  another  state   ....  194 
Such  acts  create  two  separate 
companies    194 

Purpose  of  corporation. 

Northern  securities  decision.  .190 

Lawful  purpose 190,  192 

State  may  authorize  what....  190 
Subservient  national  will  ....191 

Purpose  within  statute   192 

Adjudicated  cases   192 

Wisconsin  lawful  business  ...192 
Missouri  for  pecuinary  profit.  .192 

Held  not  limitation    192 

Other  industrial  pursuits   ....192 

Trust    illegal    192 

Quo  warranto  oust  trust 192 

Must  have  name  193 

May  have  any 193 

Necessity  of   193 

Who  may  become. 

Parties  sui  juris 188 

Competent  contract  188 

Natural   persons    188 

May  be  other  corporations. . .  .188 

Number  of  incorporators. 

Roman  law  three  form 189 

Statutes  require  more  or  less.  189 

Dummies  not  sufficient   189 

Bonafide  people   189 


INDEX 


487 


[The    figures    refer 

Legislature     can     create     one 
person  into  a  corporation . . .  189 

Statute  says  any  number  means 
more  than  one   189 

One  person  own  all  stock  ....  189 

Presumption    due    101 

Articles  filed  auditor  lOOa 

Rights  corporation   97 

Legally   immortal 97 

See  drafting  articles  92 

Romans  originated  600  B.  C. . .  .     1 

United   States  pyramid   2 

United  States  school   3 

By  legislative  acts  first  1837 4 

Connecticut  first  act  5 

Articles  contract   • 6 

Granting  charters  abandoned ...     7 

Plan    growth 8 

Lawyer  business  pilot   9 

Prejudice  against    10 

Progression  law 11 

Analysis. 

See  articles  of  incorporation. 

Defined   14 

Betterment  of  business  15 

Existence   16 

Originates    17 

Franchise  fiction    18 

Legal  existence   19 

Perpetual   succession   meaning.  .  20 

Potential  perpetuity   21 

State  plenary  power  over   22 

Eminent  domain  right  23 

Subscriptions    24 

Subscriptions   breach    contract.  .  25 
Stock  transferor  no  longer  liable  26 

Stock  descends  to  heirs 27 

Stock  evidence  right   28 

Charter  measure  power   29 

Must  keep  within  charter 30 

Subscribers  owe  unpaid  balance. 30a 

Members  respond  to  duty 31 

Stockholders'  rights  enforced...  32 

Gist  creation  of  law  33 

Must  surrender  to  law  of  liability  34 
When   territory  becomes   state. 
Quasi  national  status  Arizona..  102 
Organic  act  Arizona  territory.  ..102 
Acts  Arizona  under  U.  S.  law..  102 

Franchise  property   102 

Constitution  vested  right  undcr.l02a 

Due  process  of  law 102a 

Person  fourteenth  amendment.  .102b 
Equal  protection  laws 102b 


to    sections.] 

Congress   subservient  to  consti- 
tution     102b 

Due  process  of  law  defined 102c 

Courts  dissolve,  not  Congress ..  102c 
Articles  contract. 
See  contract. 

Threefold  contract    102f 

Between  corporation  and  state..  103 

Constitution  protected  by  103 

Principal  first  applied 103 

Canon  American  jurisprudence.  103 

Doctrine  reaffirmed  103 

Stockholder  and  state  104 

Protected  by  constitution  104 

Corporation   and   stockholder. .  .105 

Limited  to  business  stated 105 

Ultra  vires  acts  105 

Remedy  injunction. 
Equity  set  aside  ultra  vires  acts.  105 
Trust  company  enjoined  tax.  . .  .105 
Not  within  power  enjoined. .  .105 

Cltra  vires,  who  can  object 106 

State    106 

Stockholder  106 

Corporation   106 

Contracting  party  other 106 

Incorporators   agreement    ....  107 
Initiatory  contract  merged.  ..  .107 

Condition  precedent   108 

No  corporation   without  com- 
pliance      108 

Resolution    if   condition    com- 
plied     108 

Less  number  no  corporation.  .108 
Names  and  numbers  directors.  108 

Substantial  compliance    109 

Directory  provisions  not   vitiate 

articles    110 

Invalidate  business  not   Ill 

Plan  business  required   stated..  108 

Place  business  stated  108 

Purpose  stated  108 

Majority  votes  required 108 

Signature  required   108 

Full  name  not  required 108 

Five  required  sign  acknowledge. 

four  sign  no  corporation  108 

Signers  personally  known 108 

Filed  certain  place  required 108 

Published  certain  state  facts....  108 
Subscription  condition  precedent. 108 

Subscribe  afterward  108 

Statutory  requirement  not  omit- 
ted   .  -.109 


488 


INDEX 


[The    figures    refer 

Initial  Meeting  to  Form  Corpo- 
ration. 

Lawful  purpose. 
As  against  public  policy. .....  53 

In  restraint  of  trade 53 

Immorality 53 

Voting,   manner  of. 

By  show  of  bonds   54 

By  ayes  and  nays  54 

By  ballot   54 

At  common  law  54 

Majority  rule   54 

Meeting  plan  of  procedure. 

None  necessary   55 

Law  unto  itself 55 

Parliamentary  rules  purpose.  ..  .55a 
Facilitate  will  of  assembly.  . .  .55a 

Plan  suggested  initial  meeting. 

Chairman  pro  tern   56 

Form  testimonium    73 

Signature  corporate   73 

Testimonium  corporate  74 

Private  property  exempt    ....  75 

Place  of  business 76 

Designated     76 

Debts  amount  77 

Law  formed  under  what  term. 87 

Secretary  pro  tem    56 

Object  stated  by  chairman.  ...  57 

Talked  over    57 

Order  of  business  58 

Secretary's   minutes    59 

Name    60 

Capital  stock  61 

Subscription    62 

Form   subscription    63 

Stock,  kinds  of  issued  64 

Common     65 

Preferred   66 

Watered    67 

Deferred     68 

Overissued  69 

Guaranteed    70 

Duration  corporate  existence. .  71 

Seal    72 

Testimonium  seal   73 

Indenture     288 

Zigzag  to  identify  288 

Infamous  crime  member  guilty 

be  expelled  210 

Injunctions. 

Stop  ultra  vires  acts 105 

Not  lie  after  election    126 

Inspectors. 

Election   directors    .  ..163 


to    sections.] 

Sworn   New  York   151 

No  power  to  judge  proxy 125 

Allow  admix   vote   stock 126 

Election  organization   meeting..  135 

Insurance. 

No  quorum  no  defense  to  collec- 
tion  of    172 

Insolvency    May   Dissolve    Cor- 
poration  249 

Policy  effect  by  by-law  155 

Interpretation 129 

Charters  like  other  contracts . . .  129 
Of  articles  of  incorporation.  . .  .lOle 

Intention  Governs  Construction 

Charter     lOle 

Governs  contract  113 

J 

Judgment. 

Officers  not  liable  mistakes 231 

President  may  take  assignment.  .184 

Judicial. 

Notice  not  taken  by  law 155 

Decree  dissolve    101 

Jurisdiction. 

Federal  court  on  domicile 194 

Jurisprudence. 

Articles  contract  canon  of 103 

K 

Kent  deed,  long  forms 286 

L 

Law. 

Presumes  directors  shall  counsel 

as  board  172 

Best  state  to  incorporate   ......  78a 

See  states  comparison  laws...78a 

Corporation    formed    under 78 

Meeting,   initial    55 

Lawful  Purpose. 

Corporation  must  be  for.  . .  .190-192 

Lawyer  Business  Pilot 9 

Lease. 

Ratified  by  stockholders 184 

Directors  can  not  delegate  power.  175 

By  directors  notice  void 171 

In  writing   297 

Parol 297 

Any  permissive  occupation 297 

Reduced  to  writing 297 

Statutes  of  frauds   297 

Interpretation  rests  on  intention. 297 

Form    of  general    297 

Form  by  power  of  attorney 297 

Legal  Immortality  Beached  by 
Incorporation     97 


[The    figures    refer 

Loaned  Sinking  Fund    1 01  d 

Legal  Representatives  Not  Used 

in   Corporate   Contracts 266 

Legislature. 

Can  authorize  reorganization. .  .249 
Has  a  limit  to  amend  charter.  ..240 
Presumptions  favor  amendment. 240 
Not  amend  or  repeal  articles  un- 
less right  reserved 226,  241 

Prescribe  any  form  corporation .  197 

Not  bound  by  common  law 197 

Grants  powers  to  corporations.  .197 

Enacts  forms  of  deeds 286 

Lien. 

President  take  purchase  money.  .184 
Can  be  created  by  a  by-law. ..  .156 
See  by-law  of  corporations. 

Limitation   Statute   of    232a 

Stockholders  dealing  corporation 

act  not  be  fraudulent 228 

On  power  of  subordinates 187 

Louisiana     Directors     Pass     on 

Paper  Discount 175 

M 
Maine. 

Dividends    in    220 

Laws    81 

Mail,  Non-resident  Notice  by.  .222 
Majority. 

Stockholders  may  consolidate. .  .262 

Rule  249 

Stockholders  can  sell  all  assets. 249 

Stockholder  controls    238 

Directors    present,    minority    in- 
accessible, notice  unnecessary.  171 

Major  part  in  attendance 226 

Must  act  in  good  faith  226 

Can  wind  up  its  affairs 226 

Can  not  impose  obligations 226 

Governed    by    charter    in    wind- 
ing up  affairs   226 

Corporation  can  wind  affairs.  . .  .226 
Stockholders    can't    cancel    sub- 
scription, all  can 213 

Executive  committee  bind   175 

Less    acts    may    be    ratified    by 

board   directors    172  • 

Constitutes  quorum  directors  . .  .172 

Less  than,  custom  governs 172 

Bind  directors'  action    172 

By-law  may  fix  less  than   172 

Fixed    by    charter,    by-law    can 

not   change    172 

See   directors'  quorum    172 

Directors  bind  if  all  had  notice.  172 


INDEX  489 

to    sections.] 

Directors'  separate  assent  good.  172 
Quorum  directors  does  business.  172 
Directors  constitute  quorum.  ..  .172 

Directors  must  give  notice 171 

Directors    can    not    meet    at    an 
unusual  place  without  notice..  171 

Majority  rule    54,   117 

Rule  quorum   118,  119 

Stock  votes   116 

Parliamentary  law  rule    117 

Civil  law  rule  117 

By-law  may  change  rule 117 

Blanks  not  counted    117 

Stockholder  directors'  rule 117 

Different   from  partnership 117 

Majority  controls  policy  117 

Votes    not    counted    assent    re- 
fused    117 

Rule  governs  all  notice 117 

Those  who  attend  quorum 117 

Indefinite  number  rule  same....  117 

One  person  no  quorum  117 

Two  necessary  quorum  117 

Proxies  one  hold  invalid 117 

Stockholders  out  of  state 117 

Malfeasance  No  Defense  Direct- 
ors' Separate  Assent 172 

Mandamus. 

Reinstate  expelled  officer   211 

Allegations    to    security    corpo- 
ration     174 

Lies  enforce  right  inspection.  . .  .174 

Books  examine  Wisconsin  174 

Matter  of  right  Louisiana  com- 
pel allow  examination  books..  174 
Matter  right  secure  right  exam- 
ine books,  statute  provides. .  .174 

Secure  examination  books   174 

Lie  compel   dissenting  directors 

meet 171 

Test  title  office 126 

Compel  officers  turn  over  books.  126 

Massachusetts  Laws 82 

Members  Must  Respond  to  Duty 
to   Corporation    31 

Meeting,  Stockholders'  Annual .  281 

Meeting. 

Of  directors,  notice  form  of.... 279 

Stockholders'  special   275 

To  dissolve  251 

Extend  life  of  corporation  241 

Adjourned  need  no  notice  225 

Notice  must  be  given    222 

Service   notice    223 

Waiver  notice    224 


490 


INDEX 


[The    figures    refer 

Regular  purpose  stated  221 

Those  who  take  part  in  bound.  .221 
Must  be  as  board  of  directors.  .172 
Executive  committee  void  no 

notice  to  all   171 

Contrary  to  by-law  void 171 

Annual  notice  unnecessary 171 

Adjourned  minutes  form   278 

Majority  stock  invalid  no  notice. 171 
Directors'  New  Jersey  in  state..  171 
Directors'  illegal  not  effect  bona- 

fide  purchaser  171 

Directors'  out  of  state  valid....  171 

May  authorize  mortgage 171 

Evidence  of  acts  minutes  are.  171 
Formation  held  out  of  state....  171 

Minutes  directors'  form 161 

How  held  by  proxy  153 

Minutes  to  organize  137 

Purpose  organize    134 

Anywhere  state  does  not  inhibit.  130 

Where  stockholders  fix  130 

Merger. 

On  consolidation  into  one,  then 

amended  capital  stock  264 

Brought  about  by  boards  of  di- 
rectors in  consolidations 262 

Minutes. 

Of  special  meeting  of  directors.  .279 
Special  meeting  stockholders. .  .277 
Evidence  meeting  out  of  state..  171 

Signing  organization   144,  151 

Entries  initial  meeting, 

59,  61,  62,  70,  71,  74,  75.  76,  77.  .90 
Mining    Companies'    Stock    Is- 
sued   in    216a 

Misnomer  Free  Competition.  .  .245 
Missouri    Corporation    for    Pe- 
cuniary Profit 192 

Money  President  May  Take  Pur- 
chase      184 

Mortgage. 

Stockholder  take  secure  claim.. 228 

Not  ratified  by  minority 184 

Ratified  by  stockholders  184 

President  may  release  184 

President  can  not   agree  to  at- 
torney fee  in  184 

President  no  power  to  make  . .  .184 
Directors'  separate  consent  void.  172 
Valid  by  directors  out  of  state.  .171 
Cover  bonds  in  America  and  de- 
benture stock  in  England 288 

Not  a  contract  in  any  set  form.  .286 
Deed  with  defeasance 286 


to    sections.] 

Deed  proved  to  be 286 

.Enacted  by  legislatures  286 

•Difference  between  deed  286 

Form  corporate   286 

Clauses  taxes  insurance   286 

Bonds  secured  by  284 

Securing  bonds    284 

Municipal. 

Bonds  issued  at  discount  void.  .203 
By-law  meeting  contrary  void..  171 

N 

Name. 

Corporate  name  23 

See  incorporation  of  companies. 
See  initial  meeting. 
See  drafting  the  articles. 

Has  like  natural  person 60 

Variance  acknowledgment   208 

Name    lOOa 

Signed  by  rubber  stamp  296 

Negotiable. 

Bill    exchange    291 

Entitles  the  holder  to  284 

Instruments     284 

Or  non-negotiable  debenture.  . .  .288 
Compare  with  non-negotiable.  .  .284 

Negligence. 

Gross  illustrated 231 

Officer  liable  to  corporation 231 

Agent  liable  for  to  company. ..  .229 

Nevada 86 

New   York. 

Officers  dealing  corporation  void.230 
'Majority  amend  over  dissent  of 

minority    238 

Executive  committee  binding. .  .175 
Common  law  to  examine  books.  174 

Directors   be   stockholders 167 

Lien  on  stock  by  by-law  void.  ..156 

Form  acknowledgment    293 

Inspectors  sworn  151 

Charter  called  certificate 149 

Laws    ' 84 

Sale  proxy  illegal  125 

New  Jersey. 

Form  of  acknowledgment 282 

Certificate  of  incorporation   .  . .  .282 

Directors  required  meet  in 171 

Dissolution    306 

Acknowledgment  293 

Inspectors  sworn  151 

Laws    85 

Non-negotiable   Contracts    .  .  .  .284 

Non-assessable  Stock 280 


INDEX 


491 


[The    figures    refer 
Notes. 

Given  regular  course  business.  .200 

Promisory   corporation    295 

Not    sealed    295 

Mere  contract 295 

Form,   short    295 

Signature  by  president   295 

Form  collateral  security 295 

Form  marginal  guarantee  .  . .  .295 
Debenture   collateral   security.  .  .288 

Bills  directors  authorize  168 

President  given  power  to  make.  184 
Without   president    sign    if   that 

is  his  custom  void  184 

Obtained  by  fraud  not  collect .  .  184 

Northern  Securities  Case 190 

Notice. 

Given  of  directors'  meetings.  ..  .171 

Call  and  waiver  directors  279 

Call  meeting  contain,  form 275 

All  stockholders  to  dissolve. ..  .252 

To  renew  corporate  life  241 

Agents'  notice  to  company 226 

Notice  to  the  officers  notice  to 

the  company   227 

Agency  rule  of  applies   227 

Sufficiency  if  in  scope  of  agency.227 

To  officer  notice  to  agent 227 

Adjourned  not  necessary   225 

Not  new  meeting  225 

Same  as  original  meeting 225 

Can  not  reverse  business  of  reg- 
ular meeting   225 

Meeting  waiver. 

Personal  right  can  be  waived.  . .  .224 

Safe  to  have  all  sign  224 

Acts  valid  if  all  present 224 

Where  ratify  act  224 

Take  benefit   224 

One  who  takes  part  bound 224 

Proxy  bound  when  appears  . . .  .224 
Organization  meeting  proof  bur- 
den one  asserts  irregular 224 

Presumed  224 

Service  of  time  must  be  reason- 
able before    223 

Customary  time  followed  223 

Must  be  sufficient  to  enable  all 

to  attend    223 

By-laws   followed    222 

No  notice  good  defense 222 

Statute  requires  must  be  given.  .222 

No  good  defense  222 

Proved  by  parol  222 

Printing  held  insufficient   222 


to    sections.] 

Waiver  notice  222 

Physical  incapacity  no  excuse.  ..222 

Non-resident  by  mail  222 

Essential  elements  221 

Time,  place,  purpose   221 

Those  not  receiving  not  bound.  .221 
Held  subsequent  to  time  in  by- 
law   221 

Stockholder  bound  takes  part... 221 
Business  need  not  be  designated 

fixed  by  by-law   221 

Regular  meeting  purpose  stated. 221 

Special  time,  place,  purpose 221 

Dissolve  notice  must  state 221 

Meeting  ordinary  and  extra  . . .  .221 
Illustrative  cases  and  others. ..  .221 
Company  transfer  must  pay  to 

him 220 

Party  must  before  can  expel. . .  .211 
Instrument  acknowledged  and 

recorded  constructive  notice.  .205 

Given  all  executive  committee.  .175 

.   Given  all  directors'  acts  valid...  172 

Not  required  all  present 172 

Directors  must  have  unless  char- 
ter allows  quorum    172 

Same  day  too  short  171 

Should  state  time,  place,  purpose. 171 
Invalid  day  and  hour  omitted.  ..171 
Notice  consent  evidence  of  ....171 

Trespasser  can  not  raise 171 

Contrary  to  statute  void  171 

Directors  valid  chattel  mortgage.  171 

All  directors  must  be  given 171 

Traveling  directors  unnecessary.  171 

May  be  waived  to  suit. 

About  directors  unnecessary.  . .  .171 

To  non-acting  unnecessary 171 

None  at  unusual  place  void 171 

Special  meeting  directors  void..  171 

Judicial  not  taken  by-law 155 

To  amend  by-law  must  be  given. 155 

Call  waiver  organization  148 

Waiver    133 

Organization     132 

Number  of  incorporators   189 

See  incorporation  companies. 

0 
Oath. 

Provided  by  by-law  void   155 

Can  not  be  required  to  proxy..  125 
Officers  and  Agents  of  Corpora- 
tion. 

Fiduciary  relation. 
Rests  on  rule  of  agency 229 


492 


INDEX 


[The    figures    refer 
Trustees  agents  mandataries  all 

express  fiduciary  relation  . . .  .229 
Not  trustee  in  technical  sense.. 229 
Liable  for  negligence  agent  is.. 229 
Ordinary  care  and  diligence. ..  .229 

Profit  not  make  for  self  229 

Common  law  rule  agency  applies.229 

Not  hostile  to  corporation 229 

Not  liable  for  omission  of  others.229 
Errors  or  mistakes  j  udgment .  . .  229 

Thefts,  not  liable  for  229 

Dealing  between. 
Can  not  act  in  double  capacity .230 

Violates  common  sense 230 

May    act    upon    authority    of 

superior  officers   230 

Nor  for  self  and  agent  seller.  .230 

Not  participate  in  benefit 230 

Court  scrutinize  acts  officer ...  230 
Acts  free  from  fraud  stand... 230 
No  shield  others  do  not  hold 

fiduciary  relation   230 

For  two  corporations  not  act. 23.0 
May  contract  other  officers ...  230 

To  deal  must  be  fair 230 

Rule  state  courts  rigid 230 

Transactions  not  per  se  void... 230 

Ratification  needs  none  230 

Benefit  corporation  bound.  . .  .230 
Must  act  promptly  to  avoid.  .230 

All  concur  bound   230 

Corporation  must  account  and 

return  profit    230 

Bank    officers    can    not    profit 

at  expense  of  bank  230 

Execution  sale  can  not  profit.  .230 
Purchase  execution  sale  in 

good  faith  upheld  230 

Liability  to  corporation. 

Must  act  in  good  faith  231 

If  don't  act  good  faith 231 

Extraordinary   effort  not 230 

Not  for  omission  of  others... 231 
Nor  for  mistakes  or  errors  of 

judgments    231 

Nor  declaration  dividends. ..  .231 

Nor  theft   231 

Are  liable  for  breach  of  trust. 231 

And  for  ultra  vires  acts 231 

Or  want  of  due  care 231 

Or  gross  negligence  231 

Negligence     231 

Extraordinary  care  not  231 

Duty  act  good  faith 231 

Gross  negligence  illustrated.  .  .231 


to    sections.] 

Exercise  common  prudence. .  .231 
Ordinary  skill  all  required. ..  .231 
Remedies  against. 
Equity  to  account  and  damage.232 
Stockholders  call  directors  ac- 
count breach  trust    232 

Corporation  proper  plaintiff.  .232 
Stockholders      may      sue      for 

benefit  of  the  corporation.  .  .232 
Privity   none    between    direct- 
ors and  stockholders 232 

Relation  to  corporation 232 

Creditors  can  reach  officers  for 

fraud  upon  the  corporation .  232 
Contract   liability. 
Same  as  individual  agent  .  . .  .233 

Nature  of  false  warranty 233 

Principal  liable  acts  agent  .  . .  .233 
Principal  liable  for  fraud.... 233 
On  ground  of  deceit. 
Principal  liability  by  Story.  . .  .233 
For  deceits,  concealments,  mis- 
representations     233 

Liability  to  third  persons. 
Individually  for  torts,  wrongs.234 

For   frauds    .234 

Prospectus  false  issued  by  di- 
rectors they  are  liable 234 

Rests  on  deceit   234 

Must  rely  on  representation.  .234 
Liable     if    false    whether    he 

knew  was  true  or  false 234 

Statement  must  be  fraudulent .  234 
Compensation  for  services. 

None  ordinarily  235 

Must  have  contract  for 235 

Can    not    recover    on    implied 

contract  for  value  of  service. 235 
For  extraordinary  service.  ..  .235 
Attorney  recover  services.  ..  .235 

Directors  fix  the  price 235 

Directors    must    act    in    good 

faith  fixing  price  of  services. 235 
Directors  can  not  raise  salaries 

after  once  fixed  235 

Nor  pay  back  salaries  235 

Rule  not  apply  minor  agents.  .235 
Minor  servants  right  to  their 

reasonable  pay   235 

Can  fix  their  own  salary  if  fair.235 

Court  set  aside  unfair 235 

Officer  may  vote  on  salary  . . .  .235 
Removal  from  office. 

For  violation  of  contract 236 

Minor  officers  removed  236 


INDKX 


493 


[The    figures    refer 

For  cause    236 

Board    directors    not     remove 

put  in  by  stockholders  236 

Privity  stockholders. 

None    237 

Between  officers  and  corpora- 
tion   237 

Officers  no   relation   to  stock- 
holders     237 

Primary    right    in    corporation 

to  sue   237 

Connecticut  officers  agents  of 

bank    237 

Owe  duty  to  corporation 237 

Corporation     refuses     to     act, 
then  stockholder  may  sue. .  .235 

Who  has  power  to  elect 166 

Appoint  all  agents    

Stockholder  consents  represented 

by  agents   166 

Elections  prescribed  by  by-laws.  166 
Formality    election    unnecessary 
unless  required  by  by-law.  ...  166 

Common  law  seal  required 166 

Seal  none  now  unless  person  use.  166 

Vote  none  to  appoint  agent 166 

Qualification    officers    167 

Directors'    powers,    duties,    dis- 
cretion. 

None  unless  prescribed  167 

Usually  stockholders    167 

Agents    need    not    be    stock- 
holders     167 

Directors  usually  stockholders.167 
Directors  required  to  be  stock- 
holders New  York   167 

Required  to  reside  in  state-  . .  .167 

Non-resident  ineligible    167 

Non-resident  be  holds  stock..  167 
Directors  may  hold  other  un- 
less prohibited    167 

Acts   binding   where   held   out 

to  third  persons  167 

Presumed  doing  its  business.  .167 
Third  persons  need  look  no 

further    167 

Powers  of  directors  167 

Directors  wide  scope  163 

Directors  suoreme  power 167 

Directors  appoint  other  agents. 168 
Directors  authorize  contract.  .168 

Govern  general  policy  168 

Directors  elect  subordinate.  .  .168 
Common  law  no  limit  offices.  .168 
Control  corporate  business  .  . .  168 


to    sections.  ] 

Discretion    can    not    be    inter- 
fered with  by  stockholders.  168 
Stockholders   can   not   dismiss 

appeal  against  directors. . .  .168 
Honest  decision  prevails  ....168 
Fraud  conduct  questioned.  . .  .168 
Powers  charter  not  beyond...  168 

Commit  no  breach  trust  168 

Court  won't  interfere  unless. 
Depart    from    charter    or    ex- 
press   law    168 

Unwise  extravagant  not  suffi- 
cient  court   interfer 168 

Unless  fraud,  directors  control. 168 
Court  interfere  where  great 

hostility  exists   168 

Receiver,     court      will     appoint 

where  great  hostility   168 

Directors  limited. 

Stockholder  must  exhaust  all 

remedies  before  to  equity..  169 
Stockholders  must  act  as  body.  169 
Breach  fiduciary  relation  stock- 
holders can  act   169 

Corporation  refuse  any  stock- 
holder act    169 

Acts  ratified  by  stockholders .  .  169 
Ratify  acts  persons  assuming 

to  act  corporation   169 

Ratification    implied    169 

Any  one  does  acts  for  it  bound.  169 
Under  seal  ratified  under  seal.  169 
Caveat  cmptor  applies  in  issue 

of  corporate  stock 169 

Bona-fide  purchaser  protected .  169 
No  power  to  make  no  power 

to  ratify. 

Stockholders  question  fraud..  168 
Stockholders  can  do  no  corpo- 
rate act  168 

Directors  alone  do  business.  .168 
Directors  are  limited. 

To  affairs  of  corporation 169 

Can    not    effect     fundamental 

changes  in  corporation 169 

May    be    authorized    to    effect 

fundamental  change   169 

Assignment  may  make   169 

Must   keep  within  charter 169 

Stockholders  set  acts  aside...  169 

DC  facto   directors    170 

Holding  under  color  election.  170 
Such  directors  bind  company.  170 

Though  election  set  aside 170 

May  delegate  their  power 170 


494 


INDEX 


[The    figures    refer 
To  one  of  their  number.  ..  .170 

To  some  officer 170 

To  outsider  170 

Authorize  notes  mortgage  .  . .  .170 

Sign  securities   170 

Discretion  not  delegated  170 

Order  an  act  done. 

Directors'  Meetings 171 

Meet  another  state  171 

Must  act  as  board 171 

Not  separately   171 

Agents  of  corporation  171 

Formation  meet  out   state....  171 
By-law  meeting  held  in  state.  .171 
By-law    required    in    not    pre- 
vent special  out  of  state. . .  .171 
Receiver    can    not    object    not 

properly  convened 171 

Bond  issue  town  invalid  with- 
out notice  to  all  171 

Lease  void  no  notice  171 

Executive  committee  irregular 

no  notice  all   171 

Ratified  by  all  cures  defects..  171 
Validated  by  acquiescence. . .  .171 
Allotment  stock  subsequently 

confirmed     171 

Trespasser  not  raise  notice...  171 

Consent  evidence  notice 171 

Day,    hour    fixed    notice,    in- 
valid  without    171 

Special  all  must  have  notice.  .171 
Mandamus  compel  dissenting 

meet  171 

Quorum  not  dispense  notice..  171 
Two  on  same  day  only  one.  ..171 
Notice  time,  place,  purpose. .  .171 
Notice  same  day  insufficient.  .171 
Purpose  not  stated  any  busi- 
ness done  171 

Majority  present,  others  inac- 
cessible, notice  unnecessary.  171 
Notice  to  all  possible  given..  171 
Called  required  by  by-laws.  .  .171 
Election  president  without  no- 
tice all  void    171 

School   election   need  not  no- 
tice those  out  of  state 171 

Subscription  note  taken   with- 
out notice  171 

Shareholder      not      protected 

bona-fide   purchaser   when.. 171 
Quorum   presumptive   notice.  .171 

Contrary  to  by-law  void  171 

Municipal   corporation   rule...  171 


to    sections.] 

Adjourned  acts  at  valid 171 

Two  out  of  three  can  not  make 

valid  chattel  mortgage 171 

Receiver  can  avoid  notes  made 

in  violation  of  statute 171 

Notice  must  be  given  to 171 

Assignment    to    president    in- 
valid without  notice  to  all.  .171 
Special  void  without  notice...  171 
At    unusual    place    no    notice 

void    171 

Not  acting  need  no  notice..  171 
Absent  ones  need  no  notice..  171 

Control  must  give  notice 171 

Majority  stock  give  notice. ..  .171 
Custom  quorum  meet  valid...  171 

Annual  meeting  notice 171 

Disqualified     notice     unneces- 
sary     171 

Assignment  invalid  no  notice.  171 
No  notice  absent  or  traveling.  171 
Purpose  not  waived  before 

stated    171 

Assignment  by  valid  creditors.  171 
Mortgage  valid  out  of  state..  171 
Anywhere  charter  designates.  171 
Calls  subscription  out  state 

valid    171 

Minutes  meeting  evidence  acts 

out  of  state  171 

Bona-fide  purchase  protected.  .171 
New  Jersey  required  in  state.  171 

President  call  anywhere 171 

All  who  participate  bound ....  171 
Assignment  out  state  valid. . .  .171 
Alabama  prohibited  out  state.  171 

Alabama  acts  held  void 171 

Ratified  and  validated  171- 

By-laws  need  not  provide  for 

special     171 

Quorum  directors'  meetings. 
Resolution    require    four,    less 

not  do  172 

Statute  must  be  followed 172 

President  required  be  present, 

void  if  not 172 

Customary  number  binds  ....  172 

Acts  ratified  subsequent 172 

Less  than  majority  governs. .  .172 

Take  benefit  estopped 172 

Allotment  illegal  vs.  statute..  172 

Charter  fixes  governs 172 

Adjourn    172 

Six  out  eight  committee  not  act. 172 


[The    figures    refer 

Two    out    of   three,    other    in 

chair,  valid 172 

Six    city    counsel,    three    may 

pass  acts    172 

Elected  by  less  than  quorum.  .172 
Part  legal,  part  illegal,  not  sus- 
tain action   172 

Less  acts  ratified  172 

Two  not  where  only  four....  172 

Can  not  vote  by  proxy 172 

Majority  bind  if  all  noticed..  172 
Minority  acts  not  binding.  ..  .172 
Non-voting  counted  negative.  172 
Majority  can  do  business  ....172 

Presumed     172 

Majority  govern    172 

By-law    not    less    majority    if 

charter  requires  more 172 

By-law  fix  less  majority 172 

Acts  less  void  172 

Statute  fixes  must  be  followed. 172 

Majority   bind    ". . . .  172 

Charter  fixes  must  be  followed. 172 

By-law  fix  number  172 

Separate  assent  religious  trus- 
tee void    172 

Assignment  creditors'  separate 

void    172 

Separate    assent    no    defense 

malfeasance  172 

Law  presumes  directors'  coun- 
sel as  board   172 

Tax  void  by  two  separate  as- 
sent     172 

Commissioners  act  board   ....172 
School  board  act  as  board. . . .172 
Due  bill  valid  by  directors.  .  .172 
Replevin  bond  good  by  sepa- 
rate  assent    172 

Majority  separate  assent  good. 172 

Contract  good  without    172 

Must  act  as  board  to  bind.  . .  .172 
Close  corporation  assignment.  172 
Not  singly,  must  act  together.  172 
Liable  for  debts  they  agree  to 

pay  for  corporation    172 

Sufficient  power  by  charter. .  .172 
Otherwise  all  must  have  notice.  172 

All  present  binds  172 

Majority  constitutes  quorum..  172 

Less  can  only  adjourn  172 

Majority  quorum  do  business.  172 
Integral  voting  directors'  void. 172 

Must  meet  as  body  172 

Act  as  board  assembled  ....  .172 


INDEX  495 

to    sections.  1 

Verbal  assent  not  sufficient. .  .172 
Sale  all  by  owner  all  valid ....  172 
Call  subscription  on  street 

"agree"  insufficient   172 

Township     committee     single 

assent  void    172 

Separate  assent  not  good  . . .  .172 
Religious  Co.  not  act  separate.. 172 
Separate  assent  mortgage  void. 172 
Must  meet  and  act  as  board.  .172 
Deed  void  separate  assent. .. .172 
Borrow  on  pledge  without 

meeting    172 

Custom  separate  assent  valid.  172 

By-law  can  fix  number  172 

Decides  plurality  elects  172 

President    cast    tie   vote 172 

Vote    where    interested 172 

Director   no   personal    interest 

in  matter  voted  on   172 

Evidence  directors'   meeting. 

Minute-book  best 173 

Resolution  show  action  173 

Authority  proved  by  parol...l73 
Contract  on  minutes  signed  is 

written    173 

Frauds  statutes  minutes  out..  173 
Though  written  up  afterward.  173 

Copy  binding   173 

Books  for  any  one  173 

Assignment  resolution  good. .  .173 
Though  written  up  from 

memory 173 

De  facto  corporation  proof  by 

parol    173 

Directors'  right  examine  books. 

Absolute  right  to  books 174 

Hostile  stockholder  same.... 173 
Stockholders  examine  books.  173 
Common  law  right  books....  173 
Minority  require  statement.  ..  173 
Stockholder  of  bank  examine 

books  174 

New  York  common  law 174 

Railway        management        by 

Simon  Stern   174 

Mandamus  secure  right  books.  174 
Custos  must  refuse  inspection. 174 
Mandamus  matter  of  right...  174 
Louisana  right  constitution.  .  .174 
Wisconsin  mandamus  issues 

those  books  in  charge 174 

Stockholders  right  to  see  list 

does  not  allow  to  take  list.  .174 


496 


INDEX 


[The    figures    refer 
Mandamus  for  foreign  corpo- 
ration see  books   174 

Wife  have  mandamus   174 

Stockholder  have  mandamus.  .174 

•  Mandamus  allegations  174 

New  York  statute  174 

Resolution  proved  aleundi. . .  .174 
Parol  sufficient  prove  action  of 

directors  or  stockholders.  .  .174 
Close  corporation  do  all  busi- 
ness without  record 174 

Ordinary      business      without 

vote    174 

Resolutions   ordinary   business 

unnecessary     174 

Resolution   best   evidence 174 

Books  absent  proved  by  clerk.  174 

Books  best  evidence  174 

Copy      not      evidence      unless 

books  accounted   for    174 

Sworn  copies  not  evidence  un- 
less books  accounted  for... 174 
Resolution   proved   by  parol..l74 
Executive  committee  delegated 

power    175 

Directors'  right  to  delegate  ques- 
tions to  175 

May  authorize  two  to  act....  175 
Appoint  agent  to  execute  deed. 175 
Two  companies  attorney  both 

liable  fee    175 

Delegate  agent  fix  rate  175 

President  right  to  sell  note...  175 
Contracts  carried  out  agents..  175 
Delegate  authority  necessary.  175 
Delegate  what  can  and  not...  175 
Louisana  directors  pass  on  pa- 
per offered  discount  175 

Power  purchase  stock  can  not 

be  delegated    175 

Subscriptions   directors  pass..  175 
Directors'   right  to   delegate   au- 
thority. 

Call  forfeiture  not  waive 175 

Not  sell   stock  failure  to  pay 

call     175 

Location  R.  R.  route  175 

Nor  power  to  lease   175 

Nor  make  assessment   175 

To  president  upheld  175 

Executive  committee   can   not 

usurp  power  directors 175 

Such  committee  necessary.  . .  .175 
Railroad    executive   committee 
authorize   another    rv.ii   over 


to    sections.] 

line    175 

Executive  committee  may  in- 
dorse checks  175 

Stockholders     may     authorize 

executive  committee  to  act . .  175 
Rule  executive  committee  . ..  .175 
•  Executive     committee     can     not 

delegate   its   authority 175 

By-law  may  authorize  dele- 
gation   175 

Ratify  acts    175 

Committee  buy  patent  right.  .  .175 

One  person  may  act  175 

Suit  for  services  of  manager.  175 
New  York  acts  executive  com- 
mittee bind   175 

Not  questioned    175 

Stockholders  can  not  compel 
directors  to  act  with  execu- 
tive committee  175 

Executive  committee  not  vote 

"compensation   themselves    .  .  175 
Action  without  presence  presi- 
dent void  if  required  175 

Municipal      corporation      not 

delegate    175 

May  bring  action  175 

Arbitration  valid  if  ratified. .  .175 

Company  bound  if  accept 175 

Acquiescence  cures  defects.  ..  175 
Settlement  ratified  by  company.  175 
Board  approve  committee  .  . .  .175 
Executive  committee  can't  is- 
sue stock   175 

Irregularity  no  defense  to  tort.  175 

Such  acts  illegal   175 

Majority  executive  committee 

bind   175 

All  the  committee  must  have 

notice    175 

Subordinate  officers  agents...  176 
President's  powers,  etc. 
Directors  may  waive  object.  184 
Accepts  benefit  cures  defect. 184 
Bonds  pledged  directors  fail 

to  object  ratifies   184 

Acquiescence  waives  by-law.184 
Accepts   benefit   validates ...  184 
May    act    without    authority 
with  knowledge  directors.  184 

Performance  validates 184 

Vendors    lien    reserved    ac- 
quiescence not  release ....  184 
Contract  valid  not  objected 
to  nine  months  184 


INDEX 

|  The    figures    refer    to 
May  transfer  all  companies 

assets  directors  assents. .  .184 
Railroad  accepts  rates  binds.  184 
Lease  or  mortgage  ratified 

by  stockholders   184 

Bank  liable  contracts  184 

Mortgage     not     ratified     by 

minority  directors   184 

Ratifies  accepts  property.  . .  .184 
Must  repudiate  acts  agent  at 

once  or  ratifies  them 184 

Use  ratify  acts  184 

Discussion  acts  by  directors 

without  action  ratifies. . .  .184 
Bond  acquiesced  in  cures  de- 
fect   184 

Directors      may — previously 

resolve,    acquiesce,     ratify 

— receive  proceeds 184 

Board    directors    elect    or   ap- 
points     176 

President  executive  officer..  177 

Performs  routine  duties..  177 

Order  of  business  177 

Secretary  keeps  record 178 

Treasurer  keeps  accounts. . .179 

Counsel    181 

General  manager  182 

Advisory  board    183 

President,  powers,  etc. 

No  more  than  others 184 

Authorized  by  directors. . .  .184 
Charter  give  power  president. 184 
No  refuse  subscriptions. . .  .184 

Nor   employ  architect 184 

Nor  make   mortgage 184 

Given  power  make  notes.  . .  .184 

No  inherent  authority.  .....  184 

Take  assignment  judgment.  184 
Language  gives  authority.  .184 
May  borrow  binds  company. 184 
Borrow  misapplies  funds...  184 
Custom  sign  notes,  without 

void    184 

Take  purchase  money  lien.  .184 

Can  not  indorse  to  self 184 

Notes  to  self  not  enforced.  .184 
If  allowed  to  do  business 

bind  company   184 

Pledge    accepted    by    accept 

proceeds   184 

Bank  liable  receives  money.  184 
Notes  obtained  fraud  void.  184 

May  release  mortgage  184 

May  employ  editor  184 


497 

sections.] 

If  can  buy  can  buy  on  credit.  184 

May  assign  a  claim 184 

May  lease   184 

Acts  binding  when  184 

Have  entire  management . . .  184 
May  borrow  give  collateral .  184 

May  indorse  notes   184 

Contracts  secretary  good...  184 
Acquiescence  directors  equal 

to  vote  acceptance 184 

May  sign  checks  184 

Or  overdraft  184 

Or  indorse  notes    184 

Notes  not  repudiated  184 

Settle  take  due  bill 184 

Indorse  paper  customary.  .  .184 
Pledge  collateral  security ..  184 
Authority  proved  by  parol . .  184 

May  rediscount  paper 184 

Can    not   authorize   attorney 

to  accept  service  184 

Nor  agree  to  attorney  fee  in 

mortgage    184 

President  dead.  Vice  acts.  ..184 
Holds  over  may  act. 
May  engage  an  attorney. 
Nor  employ  an  attorney  for 

bank 184 

May  purchase  materials.  . .  .184 
Given  express  authority. . .  .  184 
Borrow  right  give  security.  .184 
By-laws  may  give  authority .  184 

May  act  under  parol   184 

Directors  may  overrule  184 

Power  to  sell  gives  power  to 

contract    184 

Can  not  increase  price  work.  184 
Nor  assign  patents  rights. .  .184 

Nor  confess    judgment 184 

Nor  bind  to  pay  debt 184 

Nor  sell  treasury  stock 184 

Nor  pay  brokerage  184 

Nor  give  draft  on  company.  184 
Nor    make    liable    for    pur- 
chases     184 

Nor  release  securities 184 

Nor  release  maker  note.  . .  .184 
Nor   borrow  charter  or   di- 
rectors authorize  184 

Can  employ  counsel  184 

Can  employ  special  counsel.  184 
May  bring  suit  foreclose.  . .  .184 
Vice-president,  powers,  etc. 
Same  as  president   185 


33 


498 


INDEX 


[The    figures    refer 
Secretary  and  treasure. 

Powers,    duties,    limitations, 

etc.  by  adjudicated  cases.  186 
Treasurer. 

Powers,  duties,  etc 186 

Authority      of      officers      and 
agents  generally. 

Express  and  implied   187 

Do  anything  within  charter.  187 
Power  of  officers  no  more.  .187 
Notice  taken  of  charter  and 

general  notice  by-laws.  . .  .187 
Hold  out  person  bound  acts.  187 

Authority  generally    187 

Directors  may  authorize.  .  .187 
Treasurer  holding  out  binds.187 
By-laws  not  binding  on  third 

person   187 

Corporation  may  accept  acts. 187 
Ratification  is  recontracting.187 
Ultra  vires  not  be  ratified .  .  187 

Amotion  applies  to  211 

Corporation  fix  seal   207 

Contract  corporation  own  name, 

see  name  corporation    202 

Can  not  participate  in  benefit... 230 
May  act   for   self  and   company 

upon  authority  superior  officer.230 
Can  fix  their  own  salaries  if  fair.235 
Must  be  removed  for  cause.... 236 

Election    128 

Of   corporation    lOOa 

Quo  warranto  test  illegal 126 

Not  trustees  but  mere  agents.  .237 

And  agents   compensation 235 

Liable  as  upon  false  warranty.  .233 
Can    not    act    for    company    and 

himself  at  one  and  same  time. 230 
Liable  to  corporation  want  due 

care    231 

Salary  unfair  court  set  aside.  . .  .235 

Issues  stock  caveat  emptor 169 

Order. 

Business  organization    134 

Business  initial  meeting  58 

Organic  Act  Arizona 102 

Organization  of  Corporations. 

Forming  one  thing  127 

De  jure  corporation   127 

Formed  where   127 

Defined    128 

Systematized  for  work   128 

De    facto    corporation 128 

Charters  not  granted  by  prince 
in  Rome  .  .  .  129 


to    sections.] 

Charter   required   king's  consent 

England    129 

Customs  and  usages  England.  ..129 

Common   law    129 

Scope  same  as  natural  person..  129 
Powers  corporations  Arizona ...  129 

Interpretation    129 

Election  officers  inherent   129 

Election  follows  by-laws    129 

By  law  stockholders  contract.  . . .  129 
By-laws    statutes   corporation.  ..  129 

Police  power  state  over 129 

State  no  concern  with 129 

Embargo  on  corporate  rights .  . .  129 

Make  by-laws  delegated   129 

Matter  of  corporate  business.  .  .129 
Regulated      by      customs      and 

usages  in  England   129 

Meeting  held  where  129 

Where  stockholders  choose  ....130 
Where  state  does  not  inhibit.  ..  1,30 

Meetings  held  anywhere 130 

Mere  business  of  corporation  ..131 

Proxies  to  vote   131 

Notice  time,   place,   purpose. ..  .132 

Form  notice  organization   132 

Notice  by  publication  133 

Waiver  notice  form   .  . . .  • 133 

President  pro  tem   133 

Secretary  pro  tem  133 

Purpose  of  meeting  organize.  .  .134 

Order  of  business   134 

Inspectors  of  election  135 

Election   board   of   directors.  ..  .135 

By-laws   adoption 136 

Minutes  first  meeting  form 137 

Form  of  minutes  organization.  .137 

Directors  by-laws  fixes   138 

Form  minute  election  directors.  .138 

Directors  named  in  articles 138 

President  election   139 

Seal  form  of    140 

Exchange  of  property   141 

Assessment  for  paying  up  stock.  141 
Stockholders   instruct   board....  141 

Books   corporation    142 

Kinds  of  books  purchased 142 

Secretary    procures    books 142 

Record  and  minute-book   143 

Stock-book 143 

Journal,  ledger,  etc 143 

Signing  minutes    144 

President  sign  minutes   144 

Secretary  signs  minutes   144 

Common  law  taken  from  Rome.  145 


INDEX 


499 


[The    figures    refer 
Usages    and    customs    at    com- 
mon and  Roman  law  145 

English      adopted      corporation 

Rome 146 

Charter  contract  English  law...  146 
Powers  immemorial  usages  and 

customs 146 

Statutes    interfere    with    usages, 

customs  common  law  146 

Form  minutes    147 

Minutes  form  any  state 147 

Call  and  waiver  form 148 

Certificate  designation  articles.  .149 

Certificate   presented   filed 149 

Exchange  property  for  stock. . .  .150 
Resolution  accepting  trade  for 

stock  form  151 

Treasury  stock  donation  150 

Proxy  or  organization  meeting.  .152 

Signing  minutes    152 

Meeting  authorized  out  of  state.  .152 

Proxy  ancient  term   152 

Proxy  mere  contract  152 

Proxy  under  Arizona  law 152 

Proxy  not  taken  by  by-law 152 

Proxy  sort  power  attorney  ....152 
Proxy  signed  in  blank  good.  ..  .152 
Blank  may  be  filled  in  by  holder.152 

Proxy  not  irrevocable  152 

Irrevocable  coupled  with  interest.152 
Meeting  held  anywhere  statute 

does  not  inhibit   152 

Statute    requires    held    in    state 

followed    152 

Held  by  proxy  152 

Own    existence   corporation    can 

not  attack    152 

Stockholder    present    by    proxy 

estopped  deny  meeting  valid..  152 

Person  dealing  estopped  152 

Creditors  estopped    152 

Proxy  meeting  how  held 153 

Proxy  where  held  153 

Proxy  same  other  meeting 153 

Proxy  minutes  same  person.  ..  .153 

Signing  minutes  same 153 

Proxy  meeting  plan  outlined.  . .  .153 

Fee  charged  on  extension 241 

Oregon  Laws 87 

Overissued    Stock    70 

P 
Power  to   Sue    202 

See  incorporation  companies. 
Partners     Liability     Incorpora- 

tors     196 


to    sections.] 

See  incorporation   companies. 

Powers  of  Corporations 197 

See  incorporation   companies. 

Attorney    200 

See  incorporation   companies. 

Purpose  of  Corporations 190 

See    incorporation    companies. 

Parliamentary    Law    Purpose .  .  55a 

Partnership   Rule   Voting 117 

Parol. 

Parol  not  aid  variance  in  name 

acknowledgments     208 

Sufficient  prove  proxy  125 

Passenger    Regulation    Not    by 
Law  Must  Be  Reasonable.  .  .155 

Person. 

Contracts  corporation  like   198 

Contracting      with      corporation 

can  not  question  its  existence.  195 
Who  forms  corporation  can  not 

question  existence  195 

Dealing  corporation  estopped. .  .152 
Person  corporation  duplicates. .  .97 
Corporation  is  14th  amendment. 102b 

Place  of  Business  and  Principal 
Place  Not  One  and  Same.  .  .  .238 

Pledgee. 

Claim  dividend  against  pledger. 220 

Takes  dividends    220 

Takes  dividends  stock  not  trans- 
ferred if  officers  have  notice.  .220 

President  may  pledge   184 

Accepted  by  accepting  proceeds.  184 
Pledge   good   with   separate  as- 
sent by  directors  172 

Has  right  vote  stock 126 

Plurality  Elects  Quorum  Direct- 
ors Decide    172 

Case  where  didn't  elect  172 

Real  Result  Competition 245 

Pooling. 

Certificates  assignable   245 

Not    illegal    242 

Contract  stockholders   242 

Agreement  provided  by  charter. 242 
Stock  242 

Police  Power  State  Over  Corpo- 
rations     129 

Policy  Governed  by  Directors.  .168 

Powers. 

Corporation  wind  up  its  affairs. 226 

Measured  by  articles  43 

Under  laws  Arizona   129 

Elect  officers  inherent   129 

Of  corporation  to  sue  202 


500 


INDEX 


[The    figures    refer 
Attorney  corporate  contracts  by.  199 

Corporations     197 

Purchase  stock  directors  can  not 

delegate    175 

Directors  delegated  170 

Directors      must      keep      within 

charter    169 

Directors    168 

By-law  gives  power  to  repeal. .  .155 
Given   law   eliminated    from   ar- 
ticles   94,  97,  97b 

Attorney  proxy  is  123 

Attorney  transfer  stock  by 217 

Attorney 199 

Attorney  proxy,  character  of.  .276a 

Of  attorney  lease  by 297 

Power  of  Attorney. 
See  forms. 

Instrument  in  writing 292 

Agent  general  or  special 292 

No  greater  than  the  power.... 292 
Under    seal    can    execute    sealed 

documents    292 

Acknowledged    292 

Seal    292 

General    power    292 

Revocation     292 

Substitution     292 

Form  revocation  clause 292 

Form  substitutes  clause 292 

Acknowledged    292 

Recorded    292 

Form  revocation   under  seal.... 292 

Substitution     292 

Agent   only    292 

Of  corporation   292 

Attorney  proxy  sort  of 152 

Preferred. 

Creditor  stockholder  may  be.  . .  .228 

Stock  66 

Patent  Bight. 

President  no  power  to  assign.  ..184 
Privity. 

Between  officers  corporation. ..  .237 
None  between  directors  and  the 

corporation    232 

President. 

Must  repudiate  agents  act 184 

Required  to  act   with   directors, 
their  action  invalid  without.  ..  175 

Is  the  executive  officer 177 

Order  of  business  177 

No  more  powers  than  others. . .  .184 

Authority  from  directors   184 

No  power  to  make  mortgage.  .  .  .184 


to    sections.] 

Can  not  make  notes  184 

No  power  to  assign  patent  right.  184 
No  power  to  confess  judgment.  !184 
No  implied  power  to  give  note.  .184 
Can  not  bind  company  debt....  184 
No  power  sell  treasury  stock. . .  .184 

No  power  to  pay  brokage 184 

No  power  to  give  draft 184 

Nor  release  securities  on  note..  184 
No  power  release  maker  note. .  .184 

Can  employ  counsel   184 

May  bring  suit  to  foreclose 184 

Can  not  agree  to  attorney  fee..  184 

Dead,  vice-president  acts   184 

Not  employ  attorney  bank. 

Given  authority  by  by-law 184 

May  be  overruled  by  directors.  .184 
Power  to  sell,  has  power  repre- 
sent     184 

May  have  management  184 

If  management  in  him  has  power.184 

May  borrow  for  company 184 

Sign  notes  if  customary. '. 184 

Notes  not  enforced  against  bank. 184 
Act  without  authority  if  with 

knowledge  of  directors   184 

Directors  delegate  power  to....  175 

Delegated  right  sell  note  175 

Directors'  meeting  cast  tie  vote.  172 

Can  not  vote  twice. 172 

Required  to  be  present,  void  acts 

without   172 

Required  to  act  as  part  board  di- 
rectors acts  void  without 172 

Election  of  without  notice  void.  .171 

Statement  of  call  meeting 277 

Directors  can  not  assign  to  with- 
out notice  to  all 171 

Call  directors  meet  anywhere. .  .171 
Can't  be  given  two  votes  by  a 

by-law   155 

Annual  report,  form  of 302 

Election   organization  meeting.  .139 

Secretary  sign  minutes 144 

Pro  tern   133 

Can't  decide  right  vote  proxy...  126 
Prima  Facie. 

Proxy  evidence    125 

Books  right  vote  stock 126 

Proof  Burden   on  Who  Asserts 

Irregular 224 

Property  Dividend    220 

Promoters  Corporation. 

Defined   .  ...  -216b 


INDEX 


501 


[The    figures    refer 

Promotion  or  Bonus  Stock. 

Corporation  may  give  away. . .  .216c 
Liability  depends  on  contract.  .216c 
Doctrine  unpaid  subscription.  .216c 

Proxy. 

Sort  simple  power  attorney 199 

Must  be  in  writing 125 

No  particular  form  125 

Not  acknowledged    125 

Nor  witnessed   125 

May  be  in  blank  filled  in 125 

Prima  facie  evidence  ."125 

Name  added  125 

Inspectors  no  power  to  pass  on.  125 

Oath  not  required  125 

By-law  may  require  witnessed.  .125 
Evidence  parol  sufficient  proof.  .125 

Irrevocable  proxy  void   125 

At  common  law  none   123 

Proxy  substitute   123 

Power  of  attorney   123 

Owner  of  stock  give  124 

Agreement  not  vote  void  124 

Revocable  proxy   125 

Irrevocable  always  revocable. .  .125 
Irrevocable  coupled  interest.  ..  .125 
Public  policy  irrevocable  against. 125 
Confined  to  purpose  set  forth.  ..125 
General  vote  on  all  questions. .  .125 

May  vote  viva  voce 125 

Vote  by  telegram   125 

Fraud  for  directors  to  buy 125 

Enjoined     125 

Giver  may  direct  how  voted....  125 
Vote  president  no  right  decide..  126 

Vote  stock  126 

Appears  at  meeting  bound  by ...  224 

Directors  can  not  vote  by 172 

Limited  may  be 276a 

Directions  how  to  cast 276a 

Voting  stockholders'  meetings. 276a 

Power  of  attorney   292 

Meeting  how  held  153 

Estopped  deny  meeting  valid...  152 

Hold  organization  152 

Organization  by  within  state. ..  .152 
Revocation  whatever  terms  ....152 
May  be  filled  in  where  blank.  . .  .152 

Blank  good   152 

Organization  by 152 

Term  ancient    ' 152 

Vote  organization    131 

To  sell  assets  must  so  express.. 252 
Voting  trust  242 


to    sections.] 

Publication. 

Stockholders'  meeting  276 

Of  consolidation   264 

Secretary's  affidavit    294 

Notice  organize   133 

Publish. 

Failure  not  invalidate  articles. .  .111 
Publish  lOOb 

Public   Policy    53 

Irrevocable  proxy  against 125 

Purchaser    of    Stock    Equal    to 

Subscriber    214 

Purchaser,     see    bona-fide    pur- 
chaser     171 

Perpetual   Succession    20 

See  incorporation  analysis. 

Purpose     or     Corporation     Not 
Changed  Amendment 238 

Q 
Quorum. 

Not  be  all  of  stockholders 118 

Majority   in   interest    119 

Can  not  do  ultra  vires  acts 119 

Not  amend  unless  statute 119 

Enjoin  minority  can  119 

Reason  rule  majority 119 

Test  electives  remedy  126 

Present  not  dispense  with  notice.171 
Directors  present  where  custom 

meet  acts  valid  171 

Directors  present  notice  171 

Directors  do  business  charter. .  .172 
Directors  less  can  only  adjourn.  172 
Quo  warranto  remedy  oust  trust. 192 
Quasi  judicial  to  expel  officer.  ..211 

B 

Railroad. 

Route  directors  not  delegate.  ..  .175 
Accepts  rates  binds  company. . .  .184 
Authorize    executive    committee 
another  run  over  track 175 

Ratification. 

See  officers,  agents  corporation.  171 

Receiver. 

Equity  appoint  vote 126 

Avoid  notes  contrary  statute.  . .  .17 
Not  object  directors  convened.  .171 

Appointed  by  federal  court 220 

Equity  appoint  hostility  exists..  168 

Recording  Articles  of  Incorpo- 
ration   lOla 

Registered. 

Debenture   stock    288 

Protect  transfer 284 


502  INDEX 

[The    figures    refer 

Record. 

Acknowledgments  necessary. . .  .204 
Holder  of  stock  gets  dividend.  .220 
Construction  notice  205 

Registration. 

Gold  bond  form    284 

Preferred  Stock  form   300 

Owner  one  votes  stock  126 

Relation. 

Officers  to  corporation  fiduciary. 229 

Release  of  Contract  or  Right. 

Abandoning    299 

Form  all  claims  and  demands.  .299 

Remedy  Purchaser   of  Stock  is 
Examine  Property    216 

Removal  of  Officers  and  agents .  236 

Reorganization  of  Corporation. 

Necessary    249 

Dissolution,   one   form   of 249 

Property  transferred   249 

Exchange  of  stock   249 

Freezing  out  method  249 

Destruction    contract    joint    ac- 
tion state  corporation   249 

Stockholders  all  require  249 

Legislature  authorize   249 

Dissolution  extinguishes  debts.. 249 

Can  not  dissolve  itself 249 

Stockholders  power  dissolve.  . .  .249 
Cessation  sale  or  insolvency  may 

dissolve    . .  .* 249 

Statute  of  domicile  consulted.  .  .249 

Dispose  of  assets  249 

Common  law  power  to  dissolve. 249 
Not  against  any  shareholder. . .  .249 
Doctrine    shareholder    stop    dis- 
puted    249 

Majority  sell  all  assets   249 

Sell  if  no  fraud 249 

Same  right  sell  individual  has.  .249 

Judgment  majority  rule   249 

Notice  to  sell  all  assets   252 

Notice,  form  of  253 

Form  of  253 

Served  in  reasonable  time  253 

Discussion  organization 254 

Resolution  officers  to  act 254 

Form  of  resolution  sell  assets.. 255 
Creditors  must  be  provided  for. 255 
Directors'  like  all  other  meetings.255 

Proposal  to   sell    256 

Instructions  of  stockholders. 
Directors  authorize  president.  .  .255 

Proposal  to  sell  255 

Form  proposal  sell  256 


to    sections.] 

Proposition  to  sell 257 

Form  proposition  sell   257 

New  company  meeting  258 

Form  resolution  new  company 

to  accept  proposition  to  buy .258 
Resolution    new    company   ac- 
cepting offer  to  sell .259 

Meeting  board  new  company.  .260 
Resolution    accepting   proposi- 
tion by  new  company. 
Form   of   resolution   accepting 

proposition  by  new  company.261 
Replevin   Bond   Good   Made  by 

Separate  Assent  Directors.  .  .172 
Resolution. 

Order  treasurer  open  account.  ..165 

Proved  aleundi 174 

Not  required  contracts   198 

Directors  amend  charter 240 

Accepting  price  property 278 

Secretary       procure       certificate 

stock    165 

Accepting  property  form   164 

Inconsistent  by-laws  repeals.  ..  .155 
Revocable. 

Proxy  always 125 

Power  of  attorney .292 

Power  of  attorney   292 

Roman  Law. 

Adopted  by  English  146 

Three  form  corporation   189 

S 
Sale. 

Of  assets  on  consolidation 264 

Proxy  illegal  New  York 125 

Stock   authorized   by   owner   all 

valid 172 

See  officers  and  agents  corpo- 
ration. 

Debenture  less  than  par  valid. .  .203 
Municipal    bonds    below   par   il- 
legal  .203 

Bonds  at  less  than  par  sustained. 203 
Under  execution  officers  corpo- 
ration not  profit 229 

Corporate  franchise. 
Exists  before  obtains  property. 250 
Right  obtained  from  state.... 250 
Owned  by  the  incorporators.  .250 
All     contracts     assignable     at 

common  law   250 

Not  all  negotiable  250 

Franchise  can  not  be  sold 250 

Resolution  proposal    256 

One  company  absorbs  another.  .262 


INDEX 


503 


[The    figures    refer 

Bill  of  not  under  seal 290 

Scrip. 

Dividend 219 

Issued  anticipation  dividend.  ..  .220 

No  voting  power  220 

Form  of  220 

Seal. 

Power  of  attorney  under 292 

All  contracts  common  law  166 

By-law  to  be  under 155 

Acts  under  ratified  under  seal . .  169 
Unnecessary  corporate  contracts.  198 

Corporate  72 

Contract  good  without 95 

See  drafting  the  articles. 
Court  compel  corporation  fix... 200 

Bonds  obligations  under 203 

Contracts  valid  without  200 

Bill  sale  not  paper  under 290 

See  by-laws    ....283 

In  transfer  of  stock  not  required.217 
Proved  by  party  who  affixes. . .  .207 
Anciently  only  mode  contract.  ..207 

Sealed. 

Instruments  ending  clause  270 

Secretary. 

Resolution  procure  stock-book.  .165 

Keeps  records  of  company 178 

Duties,  powers,  etc 186 

See  officers  and  agents 186 

Affidavit   294 

Sign  minutes  organization  144 

Procures  books  organization.  . .  .142 
Pro  tern  133 

Shares  One  Vote 115 

Signature. 

Form  attorney  in  fact  273 

Shows  whose  contract 273 

Corporate  and  official    269 

To  corporate  note  by  president.  .295' 
Corporate  73 

Signing. 

Articles   of  consolidation 264 

The  minutes   277 

Minutes  directors 165 

The  articles  of  incorporation.  .  .lOOa 

Sine  Die  Meeting  Adjourned.  .278 

Sinking  Fund  Loaned lOld 

South  Dakota 89 

Sovereignly. 

Corporation  has  none  113.  266 

Corporation  none  unless  granted. 197 
States  can  not  fuse  to  create 

corporation    194 

Franchise  usurped    1 12a 


to    sections.] 
State. 

May  impose  tax  on  consolidation.262 

Require  statutory  sanction   262 

May  prohibit  consolidation 262 

Give  corporate  franchise 250 

Give    option    in    charter    perpet- 
ual existence  241 

Some  give  perpetual  existence  to.241 

Others  optional    241 

Can  not  repeal  unless  the  right 

reserved  in  the  act  266 

Majority  can  amend 226 

Provisions  against  watered  stock 

ineffective     216 

No  extra  territorial  force  194 

May   incorporate  corporation   of 

another  state  194 

Corporation  formed  domicile.  .  .194 
Authorize  what  for  corporation .  190 
Meeting  directors  out  of  valid..  171 
Bona-fide  purchaser  protected 

against  directors  out 171 

Subscriptions  calls  made  out.  . .  .171 
Directors  required  to  reside  in..  167 

Directors  may  meet  in  any 171 

Mortgage  by  directors  out  valid.  171 
Require  organization  within.  ..  .152 

Meeting  reasons   for    130 

Police  power  129 

Doubt  interpretation  in  favor.. lOle 

Charters  obtained  in  99 

Comparison  laws  incorporation. 

Disadvantages    78a 

Liabilities  78a 

Million-dollar    corporation.  . .  .78a 

Arizona  Territory  79 

District  of  Columbia 80 

Maine  81 

Massachusetts  82 

Connecticut    83 

New  York  84 

New  Jersey  85 

Nevada    ' 86 

Oregon    87 

West  Virginia 88 

South  Dakota  89 

Incorporate  best  state   90 

Business  talked  over   91 

Adjournment 91 

Plenary  power  over  corporations  22 

Made  from  territory  effect 102 

Can  not  destroy  contract   102 

Pass  no  law  impair  contract.  . .  102d 
May  object  ultra  vires  nets 106 


504  INDEX 

[.The    figures    refer 

Object  corporate  existence 112 

Can  not  attack  collaterally 112 

Party  to  dissolve  corporation.  .  .112 

Statute. 

Limits  by-law,  void  beyond 156 

Must  provide  for  forfeiture,  by- 
law can't    156 

May  regulate  by-laws 155 

Acceptance  of  contract  by  state. 113 
Provides  plan  of  reorganization. 262 

Domicile  reorganization    249 

Amendment  varies  according  to. 238 
Provide  amendment  or  none  ex- 
ists    238 

Limitation  does  not  run  against 

a  fiduciary  relation 232a 

Provides    method    issuing    stock 

must  be  observed 216a 

Acknowledgment    absence    none 

required    205 

May  provide  mode  issue  bonds.  .203 
Purpose  corporation  within  . . .  .192 

Number  form  corporation 189 

Frauds  sign  minutes  takes  con- 
tract out  193 

Govern  allotment  followed 172 

Governs  number  of  directors.  . .  .172 
Fixes  quorum  directors  prevail. 
Requires  notes  contrary  void...  171 
Restrictions     stockholders    must 
authorize  the  directors  to  bond 

the  corporate  property 284 

Restrict  common  law  usages  ....  146 
By-laws  are  of  corporation  ....  129 
Corporation  territory  becomes 

state  ". 102 

Requirement  none  omitted 109 

Stock. 

Negotiability 284 

See  by-laws  283 

Issuing  and  paying  214 

See   incorporation    companies. 

Paying  up    280 

Voting  trust  registered  248 

Not     transfered     pledgee     takes 

dividend    220 

Dividend  legal 220 

Registered  holder  takes  dividend.220 

Dividend 219 

Assignment  of.  how  made. 

By  simple  delivery   217 

Assignment  on  back  217 

Power  of  attorney 217 

Transfer  by  separate  paper... 217 
Seal  not  required 217 


to    sections.] 

Necessity  transfer  217 

Transferred  in  blank  217 

Purchaser  fill  blank   217 

Transferred  in  blank  filled  in... 217 
Fraud  in  issue  creditors'  right. 
Creditors      have      better      case 

fraud   216a 

Capital  basis  credit  216a 

May  be  issued  at  fair  value.  ..  .216a 
Property  valued  at  time  issued.  216a 
Character  of  enterprise  varies.  .216a 
Mining  companies  stock  in. . .  .216a 
Value  not  determined  by  sub- 
sequent results  216a 

Statute     provides     how     issued 

must  be  observed   216a 

Issued   in   mining  company.  ..  .216a 

Watered  any  value  good 215 

Dividend  when  property  added. 214 
Three  methods  issuing  stock.  . .  .214 
Dividend  method  issuing  stock.  .214 

And  bonds  overvaluation 203 

And  bonds  railroad  construction 

less  par  element  chance  valid. 203 
Bonus  with  bonds  held  good. . .  .203 
Differ  from  bonds  less  than  par. 203 
Executive  committee  not  issue..  175 
Directors  can  not  delegate  power 

to  sell  failure  to  pay  call 175 

Power  purchase  can  not  be  dele- 
gated     175 

Owner  of  all  can  direct  sale. . .  .172 
Allotment    subsequent    valid....  171 
Issued  by  officer  caveat  cmptor.169 
Not   returned  by  reason   of  by- 
law  155 

Common  share  or  certificate.  . .  .300 

Preferred  certificate   300 

Form  common    300 

Form  preferred   300 

Form  preferred  registered 300 

Bond  for  reissue  lost   289 

Debenture 288 

Elements  of  negotiability  284 

Resolution  property  for 151 

Paying  up   141 

Character  of  issued   64 

Character  of  kinds   50 

Paying  up  manner   46 

Measure  of  interest   44 

Transferor  no  liability 26 

Stock  descends  to  heirs 27 

Can   not   object   corporate   exis- 
tence     112 

Who  has  right  vote  126 


[The    figure*    refer 
Registered  owner  right  vote....  126 

Name  on  books  votes 126 

Books  prima  facie  evidence  right 

vote    126 

President  can't  decide  right  vote 

proxy    126 

Books  decide  who  votes. 126 

Corporation  can  not  vote  stock.  .126 
Trustee  for  corporation  not  vote.126 

Pledgee  can  vote  stock  126 

Proxy  to  vote  stock  126 

Equity  not  interfere  after  elec- 
tion   126 

Exception    books    only    evidence 

owner    126 

Inspectors  allow  admx  vote 126 

Receiver  equity  appoint  to  vote.126 
Fraud  election  equity  set  aside.  .126 

Quo  warranto  test  election 126 

Office  tested  by  quo  warranto .  .  126 
Mandamus  remedy  title  office.  ..126 
Not  transferred  to  self  by  attor- 
ney in  fact  100 

Exchange  for  property  form. . .  .150 
Vote  illegal  mandamus  to  com- 
pel officers  turn  over  books . .  126 
Stockholders. 

See  by-laws  283 

Meeting  annual    281 

Form   280 

Minutes    281 

Roll  call  281 

Reading  minutes   281 

Any  may  stop  dissolution 249 

All  must  agree  reorganize 249 

Approval  amendment  240 

Make  amendment  in  Arizona.  .  .239 

No  control  except  his  vote 138 

Right  to  amend  238 

And  officers  no  relation  between.237 
Elect    an    officer,    directors    can 

not  remove  him  236 

May  sue  the  officer  for  the  bene- 
fit of  the  corporation 232 

Sue    directors    breach    trust.... 232 
Act  against  directors  for  breach 

of  trust  must  account 232 

Must  act  promptly  to  avoid  deals 
between  company  and  its  of- 
ficers   230 

Dealing  with  corporation. 

Same  right  as  stranger  228 

Creditor  take   mortgage 228 

Limitation  on  dealing  fraud.  .228 
May  be  preferred  creditors.  .  .228 


INDEX  505 

to    sections.] 

Take  mortgage  secure «his  claim. 228 
Majority  can  wind  up  its  affairs 
against  the  assent  minority. .  .226 

Takes  part  meeting  bound 221 

Dividend   declared   is  creditor.  .220 

Can  not  declare  dividends 219 

Can't  complain  watered  stock... 216 
Cancel  subscription  any  time... 213 

Subscription  213 

May  ratify  lease  or  mortgage.  ..184 
Can  not  compel  directors  to  act 

with  executive  committee  .  ..  .175 
May    authorize    executive    com- 
mittee act    175 

Or  directors  action  proved  parol.174 
Mandamus  take  memorandum.  .174 
In  bank  right  examine  books...  174 
Absolute  right  to  examine  books. 174 

Special  meeting   275 

Preceded  by  call 275 

Call  by  board  of  directors.  .  .275 
By-laws  provide  who  call.... 275 

President  may  call   275 

Form  notice  meeting  275 

Each  copy  of  notice 275 

Meeting  minutes   277 

Notice  what  must  contain ....  275 
Inquire  directors  exceed  power.  169 

Can  dp  no  business  acts 168 

Question  fraud  directors 168 

Not    interfere    directors    discre- 
tion     168 

Non-resident  may  be  directors.  .167 

Usually  officers    167 

Represented  by  agents  166 

Bound   by   by-law   regularly 156 

Can  not  be  excluded  from  books 

by  by-law 155 

Not  released  by  by-law 155 

Properly  make  by-laws  155 

Pass  by-laws 154 

President's  report  to.  form 302 

Authorize  directors  issue  bonds 

if  statute   requires    284 

Present  by  proxy  estopped 152 

Instruct  board  of  directors  buy.  .141 

By-laws  contract   129 

Liable  unpaid  purchase  stock.. lOld 

Rights   enforced   by  them 32 

See  incorporation  analysis. 

And  state  articles  contract 104 

Can   object  ultra  vires  act?. 

Can  not  attack  monopoly  1 12 

Acts  valid  out  of  state 117 

Only   give   proxy    124 


506 


INDEX 


[The    figures    refer 
Proxy  prime  facie  evidence 125 

Subscription. 

Not  effected  by  amendment 238 

In  New  York  238 

To  stock  unnecessary 214 

To  capital  stock  213 

President  no  power  to  refuse.  .  .184 

Directors  pass  on    175 

Called  on  street  insufficient 172 

Note  taken  without  notice  void.  171 

Valid  called  out  of  state   171 

Not  forfeited  by  by-law 155 

Capital    stock    62 

See  initial  meeting. 

To  stock  213 

See  incorporation  companies. 

To   stock    213 

Owe  balance  on  stock    30a 

Unnecessary  in  forming 24 

See  corporate  analysis. 
Afterward    108 

Subscription     Condition    Prece- 
dent     108 

Subordinate    Officers 184-186 

See  officers  and  agents  of  corpo- 
ration. 

Successors   Corporate    266 

Suits. 

Accounting  unpaid  stock  bonds. 203 

By  manager 175 

Sui  juris  persons  incorporate ...  188 

T 
Tax. 

State  impose  consolidation  262 

Void  by  two  separate  assent  of 

other  directors   172 

Sale  purchaser  takes  subsequent 

dividends    220 

By-law  can  not  impose  for  past.  155 

Illegal  enjoined   105 

Testimonium      or      Witnessing 
Clause. 

Corporate  deed    274 

Clause  sealed  instruments.  . .  .274 

Clause  to  contract    272 

Telegraph  Vote  Proxy 125 

Territory  Becomes  State  Corpo- 
ration   102 

Thefts  Officers  Not  Liable  for.  .231 

Trade   Restraint    53 

Treasurer. 

Election  of  upon  resignation ...  279 

Duties,  etc 186 

Keeps  accounts  of  finance 179 

Ordered  to  open  account  form.  .165 


to    sections.] 

Stock  donation  by  purchaser.  . .  .150 

Resignation    279 

Transfer  Property  Entire  Issue 

Stock  Benders  Paid  Up 280 

Transactions  Not  Per  Se  Fraud 
Same     Directors     Deal     Two 

Companies    230 

Trust. 

Fund  new  company  substituted .  262 

Certificates  assignable   245 

Breach  directors  account  232 

Breach  of  officers  liable  to  cor- 
poration     231 

One   stockholder   can   set   action 

majority  aside    226 

Directors  can  not  breach  168 

Indenture   288 

Illegal  in  restraint  of  trade 192 

Voting   explained    245 

Voting  sustained  in  states 243 

Voting  condemned   244 

Voting    242-245 

Trustee. 

Voting  trust  stock  in  245 

Officers   of   corporation   not   but 

mere  agents    237 

Of  corporation   207 

See   officers   agents   of  corpora- 
tion     171 

U 
Ultra  Vires. 

Officers  liable  to  corporation.  . .  .231 
Acts    majority    can    not    do    in 

winding  up  affairs   226 

Who  can  object  to 106 

Acts    105 

See  incorporation  articles  con- 
tract. 

Defined    105 

Stockholder  enjoin   105 

Majority  can  not  ratify 105 

Courts  less  stringent   105 

United    States   Pyramid    Corpo- 
rations          2 

School  Corporations  3 

V 

Vendee. 

Entitled  all  to  dividends 220 

Variance    in    Acknowledgment 
Not  Aided  by  Parol.  ......  .208 

Lien  must  be  retained  sales  ....184 
Vested  Bight 240 

By-law  can   not  change 158 

Not  destroyed  by  by-law 156 


[The    figures    refer 

Property  102a 

Vice-president      Powers,       etc., 

Same   as  the  President 185 

See  subordinate  officers. 
Vote. 

Stockholder  all  control  he  has..  138 

Officer  may  on  own  salary 225 

Ordina/y  business  done  without.  174 
President  casts  tie,  can  not  vote 

twice    172 

Proxy  directors  can  not  172 

None  to  appoint  agent 166 

Proxy  power  of  attorney 292 

Proxies  organization    131 

Pledgee  of  stock  right  to 126 

Stock  who  has  right 126 

Voting. 

Directors    who    do   not    counted 

negative    172 

By    directors     integral     capacity 

void    172 

By  proxy  276a 

Means  of  expression  of  will.  ...  54 

At  common  law  112a 

Every  share  has  one. 

Not  at  common  law   114 

Nor  public  one  vote   .• 115 

Private  votes  by  shares. ..  .116 
By-laws  provide  for  vote...  116 
Statute  provide  for  voting.  .116 

Majority  stock  rules   116 

Cumulative. 

Statutory   invention    120 

Rule  stated   121 

Illustrated    122 

Trick  122 

Optional  to  vote  cumulative.  .122 

By    proxy    123 

Voting  trust. 

An  appointment  of  agent 242 

By  proxy   242 

Pooling  stock  242 

Provided  in  articles  242 

Contract  between  stockholders.242 
Contracts  same  as  any  other.  .242 

Statute   against    242 

Pool  not  illegal   242 

Fraud  may  be  in  any  contract. 242 
Control  property  is  in  owner. 242 


INDEX  507 

to    sections.] 

Pooling  agreements  sustained. 243 

Condemned  in 244 

Decisions  on  various  grounds. 244 

Explained    245 

Stock  bonds  of  trustee 245 

Stock  transferred  to  trustee.. 245 
Certificate  issued  by  trustee.  .245 
Dividends  to  trust  certificate.  .245 

Certificate  assignable   245 

Agents  carry  on  trust  business.245 
Certificates     of     stock     trans- 
ferred to  a  trustee  245 

Notice    to   purchaser   of   trust 

certificate  if  in  name  trustee. 245 
Agreement  result  competition. 245 
Free  competition  misnomer.  .245 

Pool  to  save  loss   245 

Remedy    free    competition.  ..  .245 

Close  corporation    245 

Form  contract    246 

Form  certificate  common  .  . .  .247 
Form  certificate  pref  erred ....  248 
Registered  voting  trust  stock. 248 

By  proxy  valid    252 

W 
Waiver. 

Directors    184 

See  officers  and  agents  of  cor- 
poration. 

By-law  acquiescence  184 

Subscription  consent    213 

Notice    222-224 

Conditions  precedent  by  state.  .lOlh 
Watered. 

Stock  not  illegal  per  se 216 

See  stock  watered. 

Stock   67.  215 

See  incorporation  companies. 
Warranty    Court    Holds    Incor- 

porators  Liable 196 

West  Virginia  Laws 88 

Witness  to  Contracts. 

Forms  of   272 

Who  May  Become  Incorporated.  188 

Sec  incorporation  companies. 
Wisconsin. 

Mandamus  issues  to  those  who 

have  books  in  charge 174 

Lawful  purpose  formed 192 


R.  E.    DAGOS,    Expert 
on  Corporation  Law. 

Counsel    for   over   1,000 
Corporations. 

President  and   General 

Manager. 


Incorporated  Under  the 
Laws  of  Arizona 

Capital  Stock 
$100.000 


A.  J.  DAQOS,  General 
Counsel;  Member  of  the 
Bar  of  the  Supreme  Court 
of  the  United  States. 

Author  of  "How  to  Run 
a  Corporation  "and  "Rights 
of  Tramp  Corporations." 

Admitted  to  practice  in 
all  Courts  of  United  States. 


Does  a  General  Incorporating  'Business.       Charters 

Procured  and  JVeto  Companies  Financed. 

^Stocks  and  'Bonds  Underwritten 

and  Guaranteed. 

Arizona  has  the  most  liberal  Corporation  Laws  in  the  United  States.  No  franchise  tax  or 
exorbitant  lees.  Private  property  exempt  from  all  corporate  debts.  Par  of  stock  made  any 
amount.  No  limit  on  capitalization.  Stock  is  non-assessable  lor  any  purpose.  No  amount  of 
stock  required  to  be  subscribed.  No  state  control.  No  state  examination  of  books.  Legisla- 
ture can't  repeal  our  charter.  Keep  office  and  do  business  anywhere.  We  attend  to  all  liusi. 
ness  and  pay  all  fees  and  charge  you  but  a  few  dollars  in  any  case. 

References: 

Bradstreet  &   Dunn's  Commercial  Agency. 

Home  Savings  Bank  &  Trust  Co.;     Union  Bank  £  Trust  Co.; 

The  Valley  Bank;         National    Bank    of  Arizona; 

Western    Investment  Co. ;  all  of  Phoenix. 


Write  for  free  booklet  of  "Advantages"  of  a  Corporr- 
tion  oVer  other  methods  of  business  and  Advantages  uf 
Arizona  Corporation  Laws  over  other  -States. 
j\  copy  of  codified  annotated  Corporation  LaUs  of  Arizona 
and  how  to  get  a  copy  of  "How  to  Run  a  Corporation," 
and  Bylaws.  FREE. 


Address 

The  Arizona  Corporation  Charter  Guarantee  Co. 

.Rooms  5.  7  and  8  Monihan  "Bldg.,  "Phoenix,  Arizona 


LAW  LIBRARY 

UNIVERSITY  OF  CALIFORNIA 
LOS  ANGELES 


••I rnn 

000  681  530     2 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

Los  Angeles 
This  book  u  DUE  on  the  last  date  stamped  below. 


I  1978 


JANS 


MAY  0  i  2001 


41585 


Soi 


